Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

MESSAGES FROM THE QUEEN

TOWN AND COUNTRY PLANNING

The VICE-CHAMBERLAIN OF THE HOUSEHOLD reported Her Majesty's Answer to the Address, as follows:

I have received your Address praying that the Town and Country Planning (Scotland) (New Town of Glenrothes) (Special Development) Order (S.I. 1975, No. 908), dated 21st May 1975, be annulled.

I will comply with your request.

BAHAMAS (GIFT OF MACE)

The VICE-CHAMBERLAIN OF THE HOUSEHOLD reported Her Majesty's Answer to the Address, as follows:

I have received your Address praying that I will give directions that there be presented on behalf of your House a gift of a Mace to the House of Assembly of the Commonwealth of the Bahamas and assuring me that your House will make good the expenses attending the same.

It gave me the greatest pleasure to learn that your House desires to make such a presentation and I will gladly give directions for carrying your proposal into effect.

PRIVATE BUSINESS

MCDERMOTT SCOTLAND ORDER CONFIRMATION BILL (By Order)

Read a Second time; to be considered tomorrow.

GREATER GLASGOW PASSENGER TRANSPORT ORDER CONFIRMATION

Mr. William Ross presented a Bill to confirm a Provisional Order under Section 7 of the Private Legislation Procedure (Scotland) Act 1936, relating to Greater Glasgow Passenger Transport; and the same was read the First time; and ordered to be considered upon Tuesday next and to be printed. [Bill 210.]

LERWICK HARBOUR (MISCELLANEOUS PROVISIONS) ORDER CONFIRMATION

Mr. William Ross presented a Bill to confirm a Provisional Order under Section 7 of the Private Legislation Procedure (Scotland) Act 1936, relating to Lerwick Harbour (Miscellaneous Provisions; and the same was read the First time; and ordered to be considered upon Tuesday next and to be printed. [Bill 211.]

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

India (Foreign Minister)

Mr. Goodlad: asked the Secretary of State for Foreign and Commonwealth Affairs when he next proposes to meet the Foreign Minister of India.

The Minister of State for Foreign and Commonwealth Affairs (Mr. David Ennals): My right hon. Friend has no immediate plans to do so.

Mr. Goodlad: Is the Minister of State aware that recent events in India have given cause for great concern to the friends of India in all parts of the House? We look to the Government to make clear to the Indian Government, and those responsible, that what happens in India—without our in any way attempting to interfere in the internal affairs of another country—is of great interest to many countries in addition to the Soviet Union.

Mr. Ennals: It is true that anything that happens in India is followed with great interest in this country. We are naturally concerned about the present emergency in a fellow member of the Commonwealth and the measures that have been taken under it, but it is, of course, an internal affair. I have noted that Mrs. Gandhi has said that the Indian Government hope to end the emergency as soon as possible. I hope that this will soon be possible.

Mr. Biggs-Davison: Is the right hon. Gentleman also aware that the future of the Chogyal of Sikkim and of that State is of concern to his friends in this country and to those who love his particular part of India.

Mr. Ennals: That is also an internal affair. I do not want to make any comment to the House.

Uganda

Mr. Aitken: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on

Her Majesty's Government's future policy towards the Government of Uganda.

Mr. Dykes: asked the Secretary of State for Foreign and Commonwealth Affairs whether he has any plans to terminate British diplomatic representation in Uganda.

Mr. Whitehead: asked the Secretary of State for Foreign and Commonwealth Affairs, if he will seek to pay an official visit to Uganda.

Mr. Ennals: My right hon. Friend visited Uganda on 9th and 10th July. He held discussions with President Amin and with a number of Ugandan Ministers and officials, and met many of the British community. Mr. Denis Hills, the British lecturer, was released to my right hon. Friend and returned to London with him.
The talks with President Amin covered a number of topics. President Amin gave assurances about the safety of the British community in Uganda and reaffirmed that compensation would be paid for expropriated British property. Details of this and other matters of common concern are to be discussed between officials at a mutually convenient date.
Relations with Uganda have, of course, been at a very low ebb. If they are to improve, some time will be needed. We shall have to see how far we can go. But we will make a genuine effort to work towards a more normal relationship.

Mr. Aitken: Is the Minister aware that his right hon. Friend's handling of the delicate diplomatic manoeuvre which led to the release of Mr. Hills will be warmly approved by hon. Members on both sides of the House? In all the circumstances, would it be appropriate, perhaps, for the Foreign Secretary to be promoted to the rank of field marshal? However, on a serious note will the Minister say something more about the nature of the assurances which were received from the Government of Uganda? Were they specific? Were they in writing? Will they guarantee that no more British subjects will ever again be placed in jeopardy from inhumane and arbitrary treatment?

Mr. Ennals: I am certain that my right hon. Friend the Foreign and Commonwealth Secretary and all my other right


hon. and hon. Friends will appreciate the comments of the hon. Member for Thanet, East (Mr. Aitken) about the way in which my right hon. Friend handled a very difficult and delicate situation. I think that there was a general feeling of respect in the country for the way in which my right hon. Friend tackled the matter.
There are two particular aspects to the questions asked by the hon. Gentleman. The most important aspect concerns the British community in Uganda. My right hon. Friend received assurances from President Amin that Britons were welcome to live and to work in Uganda. The President undertook that if any problems arose over individuals in the future he would discuss these privately with our acting high commissioner. He also gave assurances concerning compensation, and these are being followed up at official level. Naturally it is our hope, and I am sure it is the hope of the House, that the assurances that have been given will be fully respected.

Mr. Whitehead: I should like to add my congratulations to the Foreign Secretary for his masterly handling of the situation, which was unstable not only in its political ingredients but in some of the dramatis personae involved.
Regarding compensation, many hon. Members now have constituents who are refugees from Uganda. The Ugandan Asian community in this country will want to know what the Foreign Secretary was able to secure by way of compensation agreements with General Amin.

Mr. Ennals: As my hon. Friend has referred to thanks and tributes, I should like, on behalf of my right hon. Friend, to express his gratitude to President Mobutu and to his State Commissioner for Foreign Affairs Citoyen Bula for the assistance that they gave in this affair. Without that help it is by no means certain that a successful outcome could have been achieved. I think that the House would want us to convey our congratulations to the acting high commissioner, Mr. Hennessy, and his very small staff for the way in which they handled the situation.
We have an assurance from President Amin that the details of the compensation will have to be worked out by

officials who will shortly be visiting Kampala.

Mr. Tugendhat: I should like to associate myself and my right hon. and hon. Friends with the congratulations and good wishes expressed by the right hon. Gentleman.
I want to ask about the position of British subjects in certain overseas territories. Is the Minister convinced that the Foreign Office does as much as some other countries—the United States and Switzerland come to mind—to draw the attention of British subjects to conditions in some countries in which they might choose to live? Is he sure that the Foreign Office takes sufficient steps to ensure that people understand the risks that they take when the settle in countries with political systems somewhat different from our own?

Mr. Ennals: The answere is "Yes". I should point out that it would be difficult to live in Uganda without recognising the circumstances of life in that country. It has not been without some publicity. The British community in Uganda, which comprises a relatively small core of people, is dedicated to that country. They have strong reasons for staying there. I think that they know well the situation and have made up their own minds.

Mr. Stephen Ross: asked the Secretary of State for Foreign and Commonwealth Affairs if he will take steps to make compensation available to British-born residents recently expelled from Uganda.

The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Edward Rowlands): We look to the Government of Uganda to pay compensation for losses of property suffered at the time of expulsion from that country.

Mr. Ross: I hope that the hon. Gentleman is aware that that is a very unsatisfactory answer. Does he appreciate that there are large numbers of British settlers who have been forced to return to this country in the past two or three years and who now are living in very depressing circumstances? As an example of this, in my constituency there is a man of great learning who is bringing up three children in one bedroom on £21 a week social security. Ought not this disgraceful situation be put right by means


of the Government giving some financial assistance to these people who at the moment have absolutely nothing since they were forced out? Will the hon. Gentleman speak to the Chancellor of the Exchequer about them?

Mr. Rowlands: I appreciate the position that many people are in, but it is long-established policy that, in peace time, Her Majesty's Government do not compensate their nationals in respect of losses or injuries sustained in territories outside their jurisdiction. As my right hon. Friend the Minister of State said, my right hon. Friend the Foreign Secretary raised this matter with General Amin in his recent talks.

Oman

Mr. Newens: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the current state of relations between the United Kingdom and Oman.

Mr. Ennals: Our relations with Oman are very good. Our exports to May this year are three times the equivalent 1974 figures. Many of these goods contribute to civil development, which absorbs one third of the budget.

Mr. Newens: What attitude are the Government taking to the efforts of the Arab League to secure a settlement of the rebellion in the area? Does my right hon. Friend regard the proposal put forward for the withdrawal of all foreign troops from Oman as reasonable and sensible in the circumstances, if a settlement can be achieved?

Mr. Ennals: We have warmly welcomed the position of the Arab League Conciliation Commission. In May 1974, when it was established, the Sultan of Oman readily received its members and gave all the information for which they asked. The sad thing was that they were not admitted to the People's Democratic Republic of the Yemen. That inevitably made their task more difficult. We hope that they will be able to continue with that task.
When those from outside Oman who are seeking to overthrow the Sultan cease doing that, there will be no problem about the withdrawal of other troops. The responsibility lies with those who are seeking to overturn not only a long-

standing friend of Britain, but a country which is making very rapid progress.

Mr. Blaker: Is the right hon. Gentleman aware that the House will welcome the clear words at the end of his statement, in which he made it evident that the Government recognise that the war in Oman is continuing only because the so-called rebels are supplied and encouraged from South Yemen? Bearing in mind that Oman commands the entrance to the Gulf, and what we have recently learned about the building of Soviet installations in Somalia, is it not clearly in the interests of the West, and particularly this country, that stability should be preserved in Oman?

Mr. Ennals: There is the question of stability in the whole area, but our commitment is to Oman. Oman is being challenged, but the challenge, by those responsible for it, is also a challenge to the stability of other countries in the Gulf.

Mr. George Cunningham: Are the numbers of British troops seconded to the service of Oman still kept secret, as they were under the previous Government, or is that information which the present Government are prepared to release to the House?

Mr. Ennals: There are about 200 British seconded personnel serving in the Sultan's armed forces.

Namibia

Mr. Hooley: asked the Secretary of State for Foreign and Commonwealth Affairs if he intends to visit Namibia in the near future.

Mr. Rowlands: No, Sir.

Mr. Hooley: Does my hon. Friend agree that a heavy responsibility for the solution of the problem of Namibia and South Africa's refusal to relinquish its illegal occupation of that territory rests with South Africa's major diplomatic and economic supporters, of which this country is one? What actions are the Government proposing to take to bring further effective pressure on South Africa to obey the rulings of the International Court, the Security Council and the General Assembly of the United Nations?

Mr. Rowlands: We take every opportunity to bring home to the South


African Government our feelings on the matter. My right hon. Friend the Minister of State emphasised the importance which we attach to the full freedom of Namibia in his recent discussions with the South African Foreign Minister.

Mr. Wall: Is the Minister aware that there is to be a constitutional conference on the future of Namibia this year, at which each of the racial groups will be represented by two members, which will settle the future of that State on either a federal or confederal basis?

Mr. Rowlands: My right hon. Friend expressed to the South African Government our view that the political constitutional changes proposed do not go far enough.

Mr. Luard: Is it not a fact that the British Government, together with the Governments of the United States and France, have taken considerable political risk in vetoing a recent resolution at the Security Council on this question? Would not that give us substantial leverage with the South African Government? Are the Government using their influence accordingly to seek to bring about a solution which will provide not merely for constitutional advance, but for independence for the territory as a whole, as the United Nations has demanded?

Mr. Rowlands: That is our attitude and view. We shall take every opportunity to express that viewpoint. We could not support the resolution, because of the reference to Chapter 7 and what would have flown from it. Nevertheless, we will take any initiative to ensure that the full constitutional and political progress of this territory is guaranteed.

Mr. Eldon Griffiths: The hon. Gentleman referred to the United Nations' demand for independence for Namibia as a whole. Will he have regard to the fact that as between the Ovambo people and the other racial groups there is by no mean unanimity about this? Does he recognise that self-determination for the various racial groups may in some circumstances conflict with the suggestion of a single Namibian State?

Mr. Rowlands: It is for the people themselves to decide on all political and racial matters within the territory.

United Nations Charter

Mr. Knox: asked the Secretary of State for Foreign and Commonwealth Affairs what observations he has made in response to the resolution of the United Nations General Assembly (17th December 1974), which invited Governments of member States to forward suggestions regarding a review of the United Nations Charter for consideration by the 30th Session of the General Assembly.

Mr. Ennals: Our reply to the Secretary-General of 29th May stated that in our view the Charter does not require amendment and that it would be appropriate to consider changes in procedures and techniques which would not involve Charter amendment but would increase the effectiveness of the United Nations and its organs.
The full text of the reply is available in the Library.

Mr. Knox: Would the Minister care to tell us whether the Government consulted other countries before making these observations?

Mr. Ennals: We have had informal discussions with other countries. These issues are discussed with our colleagues, but basically this was the considered reply of Her Majesty's Government.

Mr. Alan Lee Williams: Does my right hon. Friend agree that the attack made by Dr. Kissinger, the United States Foreign Secretary, upon the behaviour of certain nations inside the General Assembly should not be used as a pretext to weaken the essential Charter of the United Nations?

Mr. Ennals: I agree that it is of the greatest importance that the Charter and its procedure should be fully respected. As there have been proposals from some sources that certain countries—in this instance, Israel—should be expelled or suspended, it was right that there should be some warning of the consequences. In the view of this Government, such steps would seriously damage the prospects for the successful negotiation of a settlement of the Arab/Israeli dispute and would gravely damage the credibility of the United Nations. We believe in the universality of the United Nations as well as strict observance of its Charter.

Mrs. Bain: Will the right hon. Gentleman accept that many of us have recognised the fact that membership of the United Nations has trebled since its initial establishment in 1945, due mainly to the fact that ex-colonial States have been recognised as independent nations in their own right? Will he further accept that his own Government's recognition of the special needs of Scotland, and the recognition of these other countries as separate nations by the establishment of separate representation at the United Nations, means that this Government should have included in their recommendation the request that the Scottish and Welsh assemblies should be able to send national representatives to the United Nations?

Mr. Ennals: These, basically, are matters for my right hon. Friend the Lord President of the Council, but I must say that the carrying out of Her Majesty's Government's policy has always been through Her Majesty's Government and not through any separate part of the United Kingdom. I think the House would wish it to remain in that way.

Hong Kong

Mr. Hal Miller: asked the Secretary of State for Foreign and Commonwealth Affairs what are the plans of the Hong Kong Government for the provision of free secondary education for all who want it; and what progress has been made to date with the implementation of those plans.

Mr. Ennals: The Hong Kong Government have not announced such plans. However, the number of secondary school places is being expanded. These are heavily subsidised and a generous system of fee remission is designed to ensure that no child is denied secondary education on financial grounds.

Mr. Miller: Will the Minister of State accept that the whole object of the Chinese population in Hong Kong is to improve itself, that traditionally it has paid the greatest attention to education, and that his reply is therefore extremely disappointing, in the light of the support that the Chinese population afforded the Hong Kong Government at the time of the 1967 riots, and the strenuous efforts of the population concerning education in view of the very patchy standards and

unreasonable charges in the private middle schools, where in some cases, to my personal knowledge, there have been instances of corruption?

Mr. Ennals: Certainly the Hong Kong Government would like to move faster, but education plans must be kept within the colony's financial capabilities, with due regard to other development priorities. The Hong Kong Government's plans are to make the three years of secondary education available to all children and a further two years available to 40 per cent. of them, but, because of the budgetary restraint to which I have referred, this will not now be possible before September 1980.

Mr. James Johnson: While applauding the magnificent efforts made by the Hong Kong Government in education, may I ask the Minister to turn his mind to an equally important state in Hong Kong—the state of corruption? Will he comment, following the Godber case, on what progress has been made by the independent corruption commission?

Mr. Ennals: I would ask my hon. Friend to put down a Question on that subject.

European Security and Co-operation

Mr. Sproat: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the latest progress of the CSCE.

Mr. Frank Allaun: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about the latest state of the mutual force reduction talks in Vienna; and the conference on European Security and Co-operation in Geneva.

The Minister of State for Foreign and Commonwealth Affairs (Mr. Roy Hattersley): I will, with permission, answer this Question and Question No. 19 together.
As regards the CSCE, I have nothing to add to what I said during yesterday's debate.
It is disappointing, as the Prime Minister told my hon. Friend on 26th June, that there has been little progress in the MBFR talks after nearly two years of negotiation. I hope the conclusion of the CSCE will create the right


political climate for progress to be made in Vienna.

Mr. Sproat: May I congratulate Her Majesty's Government on the important part they have played in achieving not only a balance of advantage to the West in the CSCE but also, in my judgment, an overall balance in each basket individually? Will the right hon. Gentleman say something about the timing, the level and the aims of follow-up procedure? Does he agree that a successful CSCE by itself is only a limited step down the road to détente, and that in any case détente in itself can never be a substitute for defence?

Mr. Hattersley: I said all these things yesterday, but the hon. Gentleman and I have ideas which so coincide that I cannot resist repeating my remarks this afternoon. Of course, there has to be a pause between the summit and the follow-up machinery, but the formal follow-up has to be an inventory of the sucess of CSCE, and an opportunity for those countries which have not carried out the promises inherent in the declaration to be accused and told that they have much to do and much to improve upon.
Concerning the other aspects of CSCE, I am grateful that the hon. Gentleman congratulated the Government on what we achieved. I am sure that there has been substantial progress and that the entire conference will result in a better relationship between Eastern and Western Europe in the years that lie ahead.

Mr. Allaun: Will the Minister of State agree that it would be a setback to détente if CSCE were delayed, particularly in view of the progress already made, and will the Government do everything they can to see that the conference takes place this month or next, despite the baying of certain cold warriors?

Mr. Hattersley: The Government are anxious—indeed, I expressed my anxiety yesterday—that the summit should take place towards the end of July or in the first few days of August. I expressed that view because I believed and feared that, were the summit not to be held then, much progress and much achievement would be sacrificed, and many things which are very worthwhile in terms of European peace and security might

not be achieved. But I have to tell my hon. Friend that those countries which are preventing a summit, or at least are not prepared at this moment to endorse that proceeding, are not cold warriors. They are neutral countries, in the main, which believe that there are a number of areas where progress has to be made which has not yet been made. We regard it as our duty not to trample their views underfoot by saying that this is a conference for the major Powers. We respect the wishes of the neutral countries and we hope that their wishes can be met by 30th July. If they are, a summit shall be held.

Sir Frederic Bennett: Since one part of the Question and one part of the Minister's earlier reply was to the effect that the MBFR negotiations had not made much progress, will he remind the House—including the wet warriors—whether there has not been a substantial increase in the forces of the Warsaw Pact in the interim?

Mr. Hattersley: Again, I said yesterday during the debate—indeed, the Morning Star took me to task for it this morning—that there has been a substantial increase in the Warsaw Pact forces during the period of the MBFR talks, but I wonder whether it is wise to hark continually on that—perhaps the blame is equally shared by the hon. Gentleman who mentioned it today and I who mentioned it yesterday—and whether we should not concentrate on the object of MBFR in Vienna to obtain considerable force reductions in both pacts. That considerable reduction has to be a mutual common ceiling, and that will be difficult to achieve, but the West has to go on pressing for it.

Mr. Molloy: Does my right hon. Friend agree that, while the CSCE may not be the ultimate and final answer in providing the fullest co-operation and all the ordinary things that ordinary people desire, it is essential that conferences of this nature should be called, and that our country should participate, and will be give an assurance to the House that he will consider making statements to the House from time to time on the progress of developments after the conference has ended and the real hard work begins?

Mr. Hattersley: In some ways it will be more difficult to give progress reports


on the achievements of CSCE than on the two years of the second stage of that conference. What I can promise my hon. Friend—and I have no doubt the House would promise me—is that there are a number of aspects of the CSCE agreement which we shall all want to keep under constant review. I am sure that very many right hon. and hon. Members have family cases in their constituencies where they expect the reunification of the family as a result of the CSCE agreement. If they have not obtained that reunification, and if the countries which are parties to the agreement do not adopt that civilised course, the House will want to be made aware and hon. Members will want to remind the Foreign Office of these duties to any person, and to see that they are implemented.

Mr. Eldon Griffiths: With regard to the Vienna part of the Question, does the right hon. Gentleman recall the announcement by the United States Defence Secretary at the last NATO summit, when he said that the Soviet Union is currently spending 20 per cent. more than the United States on military research and development, 25 per cent. more on the procurement of arms and ammunition, 20 per cent. more on its general purpose forces, and 60 per cent. more than the United States on its nuclear forces? In view of those facts, and at the risk of his being again attacked by the Morning Star, will the right hon. Gentleman say now that Her Majesty's Government will not support any further reductions unless they are genuinely balanced by reductions on the Soviet side, and also that he will not support any further unilateral arms reductions by the United Kingdom?

Mr. Hattersley: I shall have to face the criticisms of the Morning Star as bravely as I can.
I am well aware of the figures to which the hon. Gentleman drew attention. It was for that reason that I drew attention yesterday to the increasing forces of the Warsaw Pact and said that the CSCE in itself did not justify any reductions of forces or in the preparedness of the Western Alliances. But all, East and West, have a strong vested interest in obtaining mutually agreed reductions in the forces of both the great pacts. I hope that we can ensure that that state of affairs is

brought about, if not in the immediate future, at some time between now and the next two or three years.

Anguilla

Mr. Marten: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the future constitution of Anguilla.

Mr. Rowlands: The Anguillans have accepted Her Majesty's Government's proposal that a new and separate constitution should be provided for Anguilla giving a substantial measure of internal autonomy. When agreement on the details has been reached the constitution will be provided by means of an Order in Council made under the Anguilla Act 1971.

Mr. Marten: I am glad to hear that. Meanwhile, will the Government do everything possible to encourage reputable investment in the island? Ever since the last notable invasion of Anguilla, it has been under a constitutional cloud which has prohibited investment coming in. Now that the people want work and investment, can Her Majesty's Government help?

Mr. Rowlands: I can give that assurance. Obviously the Government will encourage reputable investment in Anguilla.

Portugal

Mr. Churchill: asked the Secretary of State for Foreign and Commonwealth Affairs if he will seek to pay an official visit to Portugal.

Mr. Hattersley: My right hon. Friend has no plans to do so at present. He paid an official visit to Portugal on 6th and 7th February, and the Portuguese Foreign Minister was in London on 27th June for talks with my right hon. Friend the Prime Minister and my right hon. Friend the Foreign Secretary.

Mr. Churchill: I thank the Minister of State for that reply, and I express my appreciation of what the Foreign Secretary has done so far in showing a close interest in the very critical state of affairs developing in Portugal. At a time when the democratic parties are locked in a struggle for survival against totalitarian


forces in Portugal, will the right hon. Gentleman see that Her Majesty's Government do everything in their power to assist in this situation by maximising their contact with members of the Armed Forces Movement and the democratic parties?

Mr. Hattersley: There are two things to be said on that general supplementary question. The first is that many of us who had very high hopes for Portugal on 24th April found many of those hopes disappointed.
Secondly, there are substantial forces in Portgual who still fight and strive for and believe in the possible triumph of democracy. I agree that our duty as a Government and as a Parliament is to encourage those democratic forces and, unilaterally and through the EEC, we shall do everything possible to bring that about.

Mr. Heffer: In view of recent Press statements to the effect that many Government supporters who have left-wing Socialist opinions are not in favour of democracy, is my right hon. Friend aware that we support the Government in every move that they make to ensure that in Portugal there is a democratic society with freedom for political parties and with religious freedom, and that it ill becomes some Opposition Members who never once raised their voices against the totalitarian regime of Salazar suddenly to become the champions of democracy? Have not such people double standards, when many of us fight against dictatorship whether it be in Russia, Chile or anywhere else?

Mr. Hattersley: I can only repeat what I said yesterday. There are very many people whose concern for democracy in Portugal seems to have developed rather late, and I endorse what my hon. Friend said about them. Not only is the attraction of support for a dictatorship a morally unacceptable position to me, but Portugal has demonstrated that in practice and expediency it is not a course that the Western democracies should pursue because the problems and tribulations likely to come about as a result of temporary support for such regimes are de-stabilising in terms of the West's state of democracy. Had we been more concerned about democracy in Portugal 50, 40, 30, or even 20 years ago, we would need to have less concern now. Our duty

is to help those democratic forces, and my hon. Friend and I stand together on that.

Mrs. Knight: Is the right hon. Gentleman aware that there are a number of British people living in Portugal who have never had reason to fear until now, but that now they have reason to fear? Can any steps be taken to protect them, their possessions and their property in the present circumstances?

Mr. Hattersley: I am open to correction, but I do not believe that there are people living in Portgual who have cause to fear for their lives. If the hon. Lady has examples which prove me wrong, I shall be happy and anxious to investigate them. However, I know that many people living in Portugal are worried about their property and investments. I have said to representatives of the Portuguese Government—I say it again today—that if the kind of democracy that I want to see is to be built in Portugal, they have an obligation to reinforce their intention to assist international investment and those people with property in Portgual. I believe that they know that that is in their interests and that sooner or later they will make that clear.

Middle East

Mr. Leslie Huckfield: asked the Secretary of State for Foreign and Commonwealth Affairs what recent discussions he has had with his counterparts in the Middle East; and whether he will make a statement.

Mr. Goodhart: asked the Secretary of State for Foreign and Commonwealth Affairs what further discussions he has had with the American Secretary of State about the Middle East.

Mr. Ennals: Over the past month my right hon. Friend has had talks with the Foreign Ministers of Egypt and Syria. He was also present when my right hon. Friend the Prime Minister saw Mr. Rabin on 10th June. My right hon. Friend met Dr. Kissinger briefly on 12th July. The content of these discussions must, of course, remain confidential.

Mr. Huckfield: Following the abstention, at the International Women's Year Conference in Mexico, by the British


delegation on certain resolutions, including Zionism, and following the recent vote of the Islamic conference at Jedda to decide to try to expel Israel from the United Nations, if a proposal for Israel's expulsion comes before the United Nations, how will the British delegation vote?

Mr. Ennals: Dealing with the first part of my hon. Friend's supplementary question, at the International Women's Year Conference in Mexico, in every vote in which there was reference to Zionism, Her Majesty's Government made their position quite clear. It was only the final declaration that we did not support, and we abstained because, had we voted against it, we would have voted against the principal objectives of the declaration which were concerned with the rights of women. I do not think that my hon. Friend would have wanted us to do that.
I made it clear earlier that we feel strongly that it would be wrong, that it would be damaging to the interests of the United Nations, and that it would run contrary to the spirit and universality of the United Nations, for any action to be taken seeking to exclude a member State and—in answer to my hon. Friend—any proposal for the exclusion or suspension of Israel.

Mr. Goodhart: Will the right hon. Gentleman give his unqualified support to the speech of Dr. Kissinger at the University of Wisconsin, condemning moves to exclude States from membership of the United Nations? Does he agree that, although the move of the conference at Jedda to expel Israel from the United Nations would be unfortunate at any time, it is especially unhelpful at this moment, when peace negotiations in the Middle East are balanced so delicately?

Mr. Ennals: Such an initiative would be unhelpful. Following the conference in Jedda, we cannot at this stage say exactly what initiatives will be taken in the United Nations. I think that most of us hope that reason will prevail.

Mrs. Millie Miller: Is my right hon. Friend aware that at the International Women's Conference in Mexico the implications of the resolutions, which were passed by a substantial majority of the disunited nations, imply not just expelling

Israel from the United Nations but the elimination of that country? What steps would Her Majesty's Government take to ensure that any threats of this type would be resisted strongly?

Mr. Ennals: The House is well aware of the policy of Her Majesty's Government which, in this connection, is based, as it has been for years, on Resolution No. 242, which fully accepts the right of Israel to live within secure and recognised frontiers while at the same time recognising the need for Israeli withdrawal. These two policies have to be looked at together. It would be quite wrong to take one part of a policy and say that it is the whole of the policy of Her Majesty's Government.

Mr. Maudling: Can the Minister confirm reports that we have heard this morning that the Egyptian Government are asking that the United Nations' presence in the area should be terminated? Is he aware that this will cause great concern in Israel, not so much for the immediate position but for the long-term prospects of a stable reliance on the United Nations? Can he say what the Government's attitude to this is?

Mr. Ennals: It is true that the Foreign Minister of Egypt, Mr. Fahmi, has written to the Security Council. It is a matter which will have to be considered by the Security Council. It is important that the UN emergency force, as the right hon. Gentleman said, should be enabled to continue its task after the end of its present mandate on 24th July. The House will agree that the proximity of the date emphasises the urgency of achieving success in the current negotiations to reach a further partial agreement between Egypt and Israel.

Youth Exchange Programmes

Mr. Steen: asked the Secretary of State for Foreign and Commonwealth Affairs if he will increase the two-thirds travel contribution rate when young Britons visit Common Market partners; and if he will also increase the hospitality allowances when young Common Market visitors to Great Britain come over to the United Kingdom on youth exchange programmes.

Mr. Hattersley: No, Sir. It is desirable that as many young people as possible


benefit from the limited finance available to the British Council for this purpose. However, the expert groups which advise the British Council on youth exchanges have occasionally recommended an increased level of support.

Mr. Steen: As the Minister is probably aware, the present rather generous grant made by the last Conservative administration is soon to come to an end. When he is considering the terms and the level of grant for next year will he impress upon our Common Market partners that they should give similar amounts, on similar terms and conditions, to eliminate the present discrimination against youth in one country or another? Will he also make sure that he listens to the views of young people and not just to the organisations purporting to represent them, because often those organisations team with grown-ups—often in high places?

Mr. Hattersley: I understand the point that the hon. Gentleman has made and I shall do my best to fulfil his wishes. There are difficulties, due to our economic circumstances, about providing enough grants for these purposes. Certainly I should like to see more. We shall do our best not only to extend them where possible, but to make them realistic in terms of young people's understanding. This is important.

Mr. Dykes: Going somewhat beyond the question of these visits, will the Minister of State confirm that in future the Government will be in the forefront in pressing for a European passport and for the elimination of all Community passport exchanges within the Community itself?

Mr. Hattersley: That was an aim of Mr. Ernest Bevin when he became Foreign Minister in 1945. No doubt my right hon. Friend the Secretary of State would like to see it achieved during his period in office.

Council of Ministers

Mr. Canavan: asked the Secretary of State for Foreign and Commonwealth Affairs when he next intends to attend a meeting of the EEC Council of Ministers.

Mr. Skinner: asked the Secretary of State for Foreign and Commonwealth

Affairs when he next expects to meet EEC Foreign Ministers.

Mr. Hattersley: My right hon. Friend attended a meeting of the Council this morning and is accompanying my right hon. Friend the Prime Minister at the Heads of Government meeting this afternoon. He expects to attend the next Council meeting on 22nd July. This latter meeting has been arranged since I made my statement on EEC business for July.

Mr. Canavan: Will my right hon. Friend take the earliest opportunity of discussing with the Council of Ministers ways and means of democratising the structure of the Common Market, in particular by limiting the power of non-elected persons such as the Commissioners and giving more decision-making power to the elected representatives of the people?

Mr. Hattersley: There are a variety of opinions about direct elections. I shall be pressed on this matter later this afternoon when a rather contrary view to the one advanced by my hon. Friend will be put. This has to await consideration, deliberation and discussion. I ask my hon. Friend not to over-estimate the powers of the Commission during that period. The Commissioners are essentially the Community's civil servants and in that capacity are essentially servants of the elected ministers.

Mr. Tugendhat: Will the right hon. Gentleman assure us that he and his right hon. Friend will do their best to safeguard the interests of the English language when they go to the Council? I noticed that when I visited the Commission's Headquarters last month English was not used on any of the notices or signs, and there was no indication that we were Members of the Community. This reflects badly on the importance that the Government attach to matters of this kind. I am happy to say that Mr. Ortoli told me that he will put this right. What steps will the Government take to ensure that English gains parity with French?

Mr. Hattersley: I have read of the hon. Gentleman's specific achievement in this area and I congratulate him on it. I understand the point that he makes, which is of importance to those who are not as conversant in French as French Ministers


are in English. We understand the problems of being a late arrival in the Community. I realise that matters of dignity are concerned in relation to the acceptability of the English language—and the Welsh language—and we shall do our best to meet its need.

Mr. Crawford: In his next visit to the Council of Ministers will the Minister ensure, in view of the imminent establishment of the Scottish Assembly, that a Scottish Minister is permanently appointed to the Council of Ministers and that no decision affecting Scotland by the Council of Ministers will be taken without the express consent of that Scottish Minister?

Mr. Hattersley: The hon. Gentleman misunderstands the composition of the Council of Ministers as badly as he misunderstood the views of Scotland on membership of the EEC. There are no permanent appointees to the Council of Ministers. My right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs represents the United Kingdom.

Mrs. Dunwoody: Precisely for that reason, will my right hon. Friend make clear to the House whether or not his right hon. Friend will today withdraw any objections he has about a rapid movement towards direct elections to the EEC Parliament, towards closer monetary union and towards a common defence policy between the EEC countries? Is it not time that Her Majesty's Government informed the House of their attitude to these matters?

Mr. Hattersley: The House was informed of the Government's attitude in a White Paper published only five weeks ago. The Government's attitude has not changed during the past thirty days.

European Assembly

Mr. Cryer: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make representations to the Council of Ministers that direct elections to the Common Market Assembly should not be instituted.

Mr. Hattersley: The EEC Treaty contains a commitment in Article 138 to the eventual introduction of direct elections. The Council will, of course, have to give the most careful consideration to the sub-

ject before any recommendation is made to the member States about when and by what methods this might be put into practice. The Government are examining the question thoroughly in preparation for further discussions. As my right hon. Friend the Prime Minister told the House on 9th June, this is a matter for consideration by all parties in this House.

Mr. Cryer: Does my right hon. Friend agree that before the referendum the Prime Minister said that the treaty would be applied flexibly? Does he accept that the referendum in no way committed us to direct elections? Does he not also agree that direct elections in for instance, a system which provides one representative for 11 parliamentary constituencies would be essentially undemocratic and a further step along the road towards a complete erosion of the powers of this Parliament?

Mr. Hattersley: Many of us spent a long time convincing my hon. Friend and others that the treaty could and would be applied flexibly. That remains our purpose and intention. As my hon. Friend will realise from a previous answer, there are a variety of attitudes towards direct elections. A large number of people who voted against British continued membership are, I understand, in favour of direct elections, and some who voted for continued membership are not in favour of direct elections. That demonstrates that there has to be a long period of consideration. This is a constitutional matter, and parties and interests outside have to be consulted. When the Government have heard their views and come to a conclusion they will report to the House.

Mr. Maudling: Will the Minister confirm that the Prime Minister would not agree with the definition of his hon. Friend the Member for Keighley (Mr. Cryer) that the meaning of the word "flexibility" should be extended to include a total disregard of solemn obligations?

Mr. Hattersley: Yes, that is why the initial sentence of my answer reminded my hon. Friend and the House that under Article 138 of the treaty we are committed to direct elections at some time in some form. That is our obligation, and it is one we must observe.

Mr. Tindemans (Visit)

Mr. Russell Johnston: asked the Secretary of State for Foreign and Commonwealth Affairs what is Her Majesty's Government's attitude to steps towards European Union outlined to the Belgian Prime Minister during his recent visit to the United Kingdom.

Mr. Hattersley: It is Mr. Tindemans' task to try to define what is meant by European Union. The Government's view on the future development of the Community was outlined to Mr. Tindemans on the lines set out in the White Paper on Membership of the European Community: Report on Renegotiation.

Mr. Johnston: Does the Minister agree that the European Community, as such, will not continue to exist as an institution for any length of time unless there is a movement towards European Union? Will he also take the opportunity to remind his hon. Friend the Member for Keighley (Mr. Cryer) that democracy, which the hon. Gentleman so desires, is certainly not obtained in this House now, but that we would hope that it will be obtained in the European Parliament in the future?

Mr. Hattersley: I believe that the essential democratic function of the Community is exercised through the Council of Ministers, but that is a matter of dispute between the parties, particularly those parties which cannot anticipate in the immediate future being represented on the Council of Ministers.
As regards European unity, the hon. Gentleman may well be right in saying that the Community cannot continue if it does not move towards union. I am certain that the Community cannot continue if it moves over-rapidly towards union. This is a subject which must be approached with caution and discretion, and that is the policy of Her Majesty's Government.

Mr. Mark Hughes: Will my right hon. Friend confirm the fact that unless effective economic union is created, with the transfer or resources to industrial as opposed to agricultural activities in the Community, the creation of political institutions is a waste of time?

Mr. Hattersley: If I understand my hon. Friend aright, I agree with him. The Community can move towards integration only at a time when the countries within the Community begin to have levels of growth and economic activities which are parallel. Many of the movements towards union would be of a disastrous character for the economically weaker members of the Community were we to move towards it precipitately, without getting something like economic convergence.
What must happen initially in the Community is a common attitude towards foreign policy and economic policy—questions which make it appropriate for us to begin to discuss the concepts of union after we have discovered that the prosperity of the United Kingdom and Northern Ireland, and the Republic of Ireland too, is in some way parallel to the prosperity of Belgium, Luxembourg and the Federal Republic of Germany.

European Government (Commission Report)

Mr. Jay: asked the Secretary of State for Foreign and Commonwealth Affairs whether he has any statement to make on the EEC Commission report proposing the establishment of an independent EEC Government.

Mr. Hattersley: Her Majesty's Government's views on the future development of the European Communities remain as set out in Command 6003. The Commission's report will no doubt be taken into account by Mr. Tindemans in the preparation of the report which he is to produce for the Community Heads of Government. Copies of the Commission's report have been made available in the Vote Office.

Mr. Jay: Does my right hon. Friend agree with the hon. Member for Saffron Walden (Mr. Kirk) that the British electorate did not vote in favour of turning the Common Market into a political federation in the recent referendum?

Mr. Hattersley: Yes, Sir.

Mr. Marten: Does that then mean that the Government are against a federal Europe?

Mr. Hattersley: Yes, Sir, it means exactly that. But it also means that the


Government understand that the prosperity and prospects of the EEC are likely in some ways to be influenced by the progress we make towards integration on a number of specific matters. The Government will be prepared to look at these specific items of integration to see whether or not they are in Great Britain's interest.

Mr. George Cunningham: A few minutes ago the Minister said that the Commissioners are the civil servants of the Community. Does he consider that it is in keeping with that that one of the British Commissioners recently called for further unification of the Centre and the Right in the Community, to strengthen their side against the Left?

Mr. Hattersley: The reason I described the Commissioners as civil servants is that they do not have executive power to carry out major decisions without the approval of elected members. They are a different sort of civil servant from ours, in that they may from time to time say things which I would regard as inappropriate for British civil servants to say. They may say things which are undesirable, or even bizarre; but that does not mean that they are not civil servants.

Sir D. Walker-Smith: Is not the central fact that any change in the institutional structure of the Community and, a fortiori, any initiation of an independent EEC Government, requires an amendment to the EEC Treaty, under Article 236, and that that requires ratification by each member State? Is not the really important thing that the form and the pace of institutional development be fully in accord with the will of the peoples and parliaments of the member States?

Mr. Hattersley: If I can translate what I believe to be the right hon. and learned Gentleman's very precise question into my own crude language, I think he was saying that the speed with which we move towards any of these imagined federations or unified Governments can be determined by the House, dictated by our will on the speed. If he is saying that, I wholeheartedly agree with him.

Welsh Organisations (Liaison)

Mr. Wigley: asked the Secretary of State for Foreign and Commonwealth Affairs if he will introduce proposals

designed to improve liaison between bodies representing Welsh interests and the institutions of the EEC.

Mr. Hattersley: Full account is taken of Welsh interests under the existing arrangements for the representation of the United Kingdom in the institutions of the EEC and for the formulation of the Government's policies on EEC matters.

Mr. Wigley: The right hon. Gentleman will be aware that the EEC is opening a full-time office in Cardiff, as it is in Edinburgh. Does he not feel it appropriate for Wales and the Welsh Office particularly to have a full-time office in Brussels to represent Welsh interests and for Wales to have a permanent base there similar to the office that Bavaria has in relation to the EEC, if Wales is to have direct representation on the permanent commission of the United Kingdom in Brussels and, in due course for the Welsh Assembly to have direct links with the institutions of the EEC?

Mr. Hattersley: As regards the Welsh Assembly and its direct links, presumably with the European Assembly, this must be decided as part of our general deliberations on direct elections and things that go with that. On direct representation within the Commission, suspecting that the hon. Gentleman might draw my attention to the German example I have examined that. I do not think it is as direct and precise as he suggests. The German model is rather like the British model. Through the decisions of the national Government, the unified national Government, the representations and the interests of various parts are properly observed, and I think that is what happens in Britain.

Mr. Kinnock: Is it not true to say that the office in Cardiff, in any case, was a pre-referendum Commissioners' gimmick and that now they are significantly embarrassed by the applications coming in from all over the remainder of the EEC for equally fruitless establishments at all the assorted parts of the Community?

Mr. Hattersley: The establishment of the office in Wales is not fruitless. There are all sorts of ways in which the Principality can, if it chooses—if its industry and its local authorities choose—benefit from provisions of the EEC. It ought to benefit from the regional development


fund and the social fund. The office in Wales ought to be able to explain how those benefits can be obtained.

OIL COMPANIES

Mr. Cryer: asked the Chancellor of the Duchy of Lancaster what is the expected output of the oil companies in which a 51 per cent. stake has been agreed.

Mr. Canavan: asked the Chancellor of the Duchy of Lancaster whether he has now completed negotiations with the oil companies on participation; and if he will make a statement.

Mr. Skinner: asked the Chancellor of the Duchy of Lancaster what further negotiations are proceeding with oil companies regarding the British Government's participation.

Mr. Rost: asked the Chancellor of the Duchy of Lancaster how many oil companies have now surrendered in principle a 51 per cent. interest in their North Sea assets, as a result of his negotiations.

The Chancellor of the Duchy of Lancaster (Mr. Harold Lever): As I explained to the House on 25th June, we are having constructive and detailed discussions with a substantial number of companies with interests in the North Sea. The discussions will inevitably take some time, but I shall be keeping the House informed of progress. Four corn-panics have agreed in principle to 51 per cent. Government participation in their commercial oilfields in the North Sea. Estimates of the output of individual companies are kept confidential, so as not to damage the companies' commercial interests.

Mr. Cryer: Does my right hon. Friend accept that the four companies he has named are minor ones? Does he agree that in regard to the major oil companies, for us to gain a 51 per cent. stake, reserve powers of compulsory purchase will be needed? Will he assure the House that when the Bill for reserve powers against trade unionists to keep wage claims down to £6 comes before the House he will also recommend to his Cabinet colleagues

that there should be reserve powers to buy the 51 per cent. stake in the oil companies? Does he agree that it would make a welcome change for reserve powers to be used to carry out Labour Party policy?

Mr. Lever: I think that my hon. Friend is wrong in believing that the four companies concerned can be described as small companies. I am in discussion with 20 companies, large and small, United Kingdom and foreign, and these discussions are proceeding very satisfactorily.
I am very hopeful that we shall conclude these negotiations without having any recourse to reserve powers, and I hope that we are equally successful in the case of our industrial policy.

Mr. Rost: As nationalising 51 per cent. of the North Sea will cost about £1,000 million, and yet the Government have declared that it will he on a basis of a no-loss, no-gain in profits to either the companies or the Government, what is the point of proceeding with this damaging, inflationary and doctrinaire exercise?

Mr. Lever: The hon. Gentleman has asked the same question in almost the same words on many previous occasions. I do not complain that he worries about the point like a dog with a bone, but he is confusing cash flow with costs. Any money that the Government advance in terms of the North Sea will represent a wise investment, in the interests of the British people. It will be virtually risk-free and will come back in a relatively short time with an appropriate additional return. Accordingly, the hon. Gentleman is mistaken not only as to the consequence but in his speculation about the amount of money involved.

Mr. Canavan: Bearing in mind that these secret talks have been going on for about eight months, and agreement has been reached with only four out of a total of about 40 companies involved, is there not a danger that oil production will be delayed as a result of those protracted negotiations, at a time when our balance of trade deficit in oil is running at over £200 million a month? Does not my right hon. Friend think that, in order to


expedite our plans for participation, additional legislation is necessary, instead of just continuing to pussyfoot around with the oil companies?

Mr. Lever: I hope that my hon. Friend does not find it unwelcome that the negotiations are conducted in private. I hardly think that it would advance our interests if they were conducted otherwise.
As regards hastening the delivery of North Sea oil, it is not in the least delayed by the negotiations, and certainly would not be hastened by the kind of suggestion that my hon. Friend has in mind.

Mr. Gordon Wilson: Do the Government still intend to take an overall 51 per cent. share in the North Sea oilfields? What legal drawbacks is the right hon. Gentleman finding in the negotiations? If he succeeds in obtaining 51 per cent. participation in the fields on a no-gain basis, will not that mean that the Government are involved in a face-saving gesture to perform the miracles of the manifesto with no intention of carrying them out in fact?

Mr. Lever: The answer to both those questions is "No, Sir".

Mr. Burden: Does the right hon. Gentleman intend to approach the Arab oil countries to obtain the money to invest in the oil companies that the Government propose to take over? Have the Arab countries expressed any desire to lend money for such a purpose?

Mr. Lever: Again, the answer to both questions is "No, Sir".

MEMBERS (PAY AND ALLOWANCES)

The Lord President of the Council and Leader of the House of Commons (Mr. Edward Short): With permission, Mr. Speaker, I will make a statement about the pay and allowances of Members of Parliament.
The House will recall that on 19th December 1974 I announced that parliamentary pay and allowances would be the subject of an independent review by the Top Salaries Review Body. Part I of its report is published today as a

Command Paper, No. 6136. Copies are available in the Vote Office.
The Government—and I am sure that I speak for the whole House—are very grateful to Lord Boyle and his colleagues for all the hard work that has gone into the preparation of this report. This part of the report deals with the parliamentary salary, including the part of their parliamentary salaries drawn by Ministers, and the various allowances payable to Members. The Review Body intends to report on Members' pensions, Ministerial salaries, the rates and conditions of payment of Peers' expenses allowances and some miscellaneous questions affecting other allowances later in the year.
In the report published today, the Review Body has recommended that the salary of a Member of Parliament should be increased from £4,500 to £8,000 a year—an increase of 78 per cent. This figure not only takes into account the increase in the Retail Price Index since 1st January 1972 up to the end of June, which was estimated at 66 per cent., but also recognises the greater and still growing demands of parliamentary work since the last review in 1971.
At present the amount of Members' salary payable to Ministers is £3,000, and the Review Body has recommended that this element should be increased to £5,000 a year.
The Review Body has recommended further increases in the various maximum rates of Members' allowances which can be drawn in relation to actual costs incurred. These are as follows: secretarial allowance from £1,750 to £3,200 a year; additional costs allowance from £1,050 to £1,350 a year; London supplement from £228 to £340 a year; car mileage allowance from 7·7p to 10·2p a mile; number of free travel vouchers to Westminster for the wife or husband of a Member to be increased from 10 to 15 a year.
It has also recommended that the additional costs allowance, the London supplement and the car mileage allowance should in future be adjusted automatically with corresponding increases in the appropriate Civil Service rates.
The Review Body has recommended against any form of link between Members' salaries and any other salary scale or index on the grounds that the MP's


job is unique and cannot be compared with any other for the purpose of establishing a link in pay. It suggests that if such a link with another group were created it would merely transfer the sensitivity about Members' pay to that of the group to which MPs were linked. What the Review Body has recommended instead is a two-yearly review.
The Government have been examining these proposals over the past few weeks against the background of the discussions on the counter-inflation policy announced by my right hon. Friend the Prime Minister last week. The Government accept that the Boyle recommendations are justified. So far as allowances are concerned, the recommendations are based on a fair and thorough investigation of the costs involved, and they will be implemented in full from 13th June.
I turn to the salary recommendations. The parliamentary salary has remained frozen for three and a half years, while the RPI has increased by 66 per cent. We accept that an increase in Members' salary is clearly justified, but at a time when the Government have announced their anti-inflation measures we could not support a recommendation that Members should receive a 78 per cent. increase. We therefore propose that Members' salaries should be increased by £1,250—

Hon. Members: Disgraceful.

Mr. Nicholas Winterton: Jam tomorrow.

Mr. Short: —instead of the £3,500 recommended, giving a new salary of £5,750. The increase will be implemented from 13th June 1975.
The Government do not believe, however, that pension rights should be prejudiced, and will therefore propose arrangements which will allow Members' pensions to be based on the figure of £8,000 recommended by the Review Body The method of implementing this proposal will require further study, and we shall announce the details in due course.
On the question of how Members' salaries should be determined in future, as my right hon. Friend the Prime Minister said on 3rd July, we shall be initiating consultations designed to achieve the broadest possible coverage of opinion of front benchers aid back

benchers on whether the time has come for Members' pay to be directly and automatically linked with other relevant salaries in a way that would take the whole question out of the range of external inquiries. If this proves to be the wish of the House, the Government will very happily make the necessary arrangements.
With regard to Ministerial salaries, the House will recall that on 20th December 1974 my right hon. Friend the Prime Minister announced that all Ministerial salaries would be frozen until at least 1st January 1976. In relation to the recommendations of the report, the Government propose that there should be no increase in the amount of the parliamentary salary drawn by Cabinet Ministers who are also Members of this House. Ministers outside the Cabinet will receive an increase of £700 compared with the £2,000 recommended by the Review Body—the same proportion of the recommended increase proposed for Members' salaries.
Resolutions bringing these various proposals into effect will be put before the House at the earliest opportunity. I hope that they will command the full support of the House.
I fully understand that some Members may feel disappointment, but I do not doubt that everyone in this House accepts the gravity of the situation and the need for restraint. But some may ask how an increase of 28 per cent. shows restraint. To them I should point out that this is less than half the increase in the cost of living since Members' last increase in salary, and that during this time average earnings in the country have risen by 85 per cent. Had Members' pay been calculated on the basis of stages 2 and 3 of the previous Government's pay policy, plus an allowance for the cost of living between the end of that policy in July last year and 1st June this year, Members would have had a pay increase of £1,800 compared with the £1,250 the Government have proposed.
Members have therefore been asked in the national interest to make a very heavy sacrifice by accepting little more than one-third of the increases recommended by an independent review body. We have been urged from many quarters to set an example to the country. I believe that in accepting these recommendations,


which involve a considerable loss of real income, we shall have done so.

Mr. Peyton: The Government can hardly expect to be congratulated on their handling of this affair.—[HON. MEMBERS: "Hear, hear."]—I have some questions to put, all of them short. Why, on this preeminently House of Commons matter, did the Government not consult anyone on this side of the House? Why have they not even shown us the Committee's report until now? We have only just seen it. How are they going to reconcile not the small print of the White Paper but what the Prime Minister was generally understood to be saying and meaning on Friday—about no special cases—with what they are doing now? Is the right hon. Gentleman aware that one thing certainly emerges—the Government will please no one?

Mr. Short: I tried to estimate last night what the right hon. Gentleman would say and I got it almost exactly right. On the question of consultation, I understand that we have followed exactly the practice on previous occasions. As far as I am aware, there has been no consultation on previous occasions. On the second point, the Government regard the increases as fully compatible with the pay policy requirements. The new pay limit of £6 applies to settlements with an operative date from the 1st August onwards and the TUC had advised that agreements with a date before this should be settled within the existing guidelines. Taking account of the fact that hon. Members have received no increase since January 1972, the proposed increases do fall within these guidelines.

Mr. Walter Johnson: Is my right hon. Friend aware that, much as all hon. Members need the extra money, this is surely the time for us to set an example to the nation, first by limiting our pay increase to £6 a week over the next 12 months and secondly by reducing the secretarial allowance? Would he look again at the living away from home allowance, because an increase is needed there? He has said that he will do something about Members paying pension contributions at the full level of the recommended salary. Would he accept that that is absolutely right in order to protect those hon.

Members who will be leaving this House on retirement and those who will not be coming back after the next election?

Mr. Short: The living away from home allowance has been increased and the secretarial allowance will enable hon. Members who wish to do so to employ a full-time secretary and will help us to implement the very good report of the Select Committee dealing with Members' facilities. I make no apology for the pay increase. It is fully justified. Hon. Members deserve the increase. They have been very badly treated. I would be prepared to defend this increase anywhere in the country, and I hope that all hon. Members will be prepared to do likewise.

Mr. David Steel: Is the right hon. Gentleman aware that some of us who gave evidence to the Boyle Committee on the linking of pay are very disappointed that they have not accepted our suggestions? Will he accept that we welcome his statement that he will enter into immediate consultations and have the matter discussed in the House? Does he accept that the increases in actual expenses are right but should not be added to our salary, as has happened in some in some newspapers, who have suggested that this was our total remuneration? Can he say whether there will be a free vote on this question, as there may be different views in different parts of the House, and some of us take the view that if the Government's policy of a £6-a-week maximum increase for everyone else is to have any chance of success, we have no alternative but to set a rigorous example here?

Mr. Short: I share the hon. Member's views on linking and would be prepared to hear from any hon. Members on this subject. There will be a debate and I would welcome expressions of view then. If it is the wish of the House, we would be prepared to arrange linking so that this matter is dealt with automatically in future. On the question of expenses, the hon. Gentleman is absolutely right. Hon. Members must certify that they have spent these amounts before they can claim expenses, and these should not be added to salaries. They are not a salary increase. On the question of a free vote, I can speak only for this side of the House, but my right hon. Friend


has told me that there will be a free vote for this side of the House.

Mr. Ashton: Does my right hon. Friend not recognise that the Committee was set up to take the question of MP's pay out of politics and that the Cabinet has virtually ratted on an independent arbitration award? If back benchers have to make do with a 27 per cent. increase to cover a period when the cost of living has increased by 66 per cent. why does not the Cabinet do the same? Will he ask the Prime Minister to reduce his salary to £11,430, which is 27 per cent. more than the £9,500 he was getting on the 1st January 1972 so that, as good Socialists, we have equal sacrifices for all?

Mr. Short: On the first point, I fully understand the great hardship suffered by hon. Members on both sides of the House. Let there be no doubt about that. This is not an arbitration award. The Committee is an independent review body not an arbitral body and the Government are not obliged to accept the findings of any of these Top Salary Review Bodies. With regard to the Cabinet's salaries, I am sure that my hon. Friend could not have heard me. The Cabinet has already announced that we shall take no increase and that the increases in the parliamentary element of Ministerial salaries will not be accepted by members of the Cabinet.

Sir Raymond Gower: While many of us recognise the Government's predicament, can the right hon. Gentleman explain why they delayed this report until the most inappropriate time? Can he give some assurance that in future there will not be such a delay and that the Government will bring forward these increases at the same time as other big claims are coming forward?

Mr. Short: The hon. Gentleman has been here long enough to know that there is never a right time. I have checked on previous reports from this body, and the time taken on this occasion is just about average. The recommendations have never previously been published in less than a month.

Mr. Ogden: Will my right hon. Friend thank Lord Boyle and his colleagues for their report and agree that the recommendations concerning the

proper salary, status, pension provisions and linkage deserve the full support of every hon. Member? Will he also accept, however, that the miserable recommendations of the Cabinet to this House on the new salary scale pander only to the prejudices and ignorance of the uninformed inside or outside this House? Will he confirm that if any hon. Member feels that he neither needs nor deserves the increase he has no need to take it?

Mr. Short: That is a point of view which I know my hon. Friend holds strongly. He came to see me and explained his view, and I do not quarrel with him. But I must tell the House that this recommendation—and that is all it is; it will be a matter for the House itself to decide on a free vote—strikes a fair balance between the need for restraint, on the one hand, and the need to help hon. Members in their admitted difficulties, on the other hand.

Sir John Hall: Will the Leader of the House, through his right hon. Friends, suggest to trade unions, journalists and editors that, following the example set for them by Members of Parliament, they do not put in a further demand for an increase in wages and salaries for the next three and a half years and that when they do they accept a settlement which is less than half the rise in the cost of living over that period?

Mr. Short: With its usual fairness I am sure that the Press will report fully what the hon. Member said.

Mr. Arthur Lewis: May I develop the point raised by the hon. Member for Wycombe (Sir J. Hall)? Since most of the radio and television commentators and newspaper editors advise the Government to take no action on the Boyle Report, may I recommend that the Government accept that suggestion, provided that Members of Parliament get the same percentage or the same cash increases as the editors, the radio and television commentators and everyone else who is complaining about the size of our pay rise has had since January, 1972? I, personally, would settle for half of their expenses.

Mr. Short: My hon. Friend has information about the expenses of editors which I do not have, but I agree that it


is galling to be lectured by people who have had enormous increases in the last few years. We shall see how they treat the considerable sacrifice which hon. Members are being asked to make.

Mr. Evelyn King: Does the Lord President agree that the part of his statement which is unacceptable to those outside lies not in the figures which he has propounded—although I think them excessive—but in the fact that we are seen to fix our own salaries, a thing no man ought to do? Does he agree that when this matter next arises he will seek to have our salaries linked to some other scale so that we never again fix our salaries in isolation from those of other people?

Mr. Short: if that is the wish of the House, I shall be very happy to arrange for it to be done. It should be arranged in such a way that not only is the increase decided but it is paid without the need for a resolution of this House. We must try to ensure that.

Mr. MacCormick: Does the Lord President appreciate that many hon. Members from different parties do not regard themselves as Government employees? In view of that, would it not be better for us to try to evolve, regardless of the sums concerned, a procedure which does not involve the Government laying down figures which have to be accepted by hon. Members?

Mr. Short: As I have said, if that is the wish of the House, I shall be happy to arrange for that to be done.

Mr. Mike Thomas: May we be given two pieces of information? Would the whole of the Boyle Report recommendations have been allowed under the White Paper proposals? My view is that they would have been allowed. Will my right hon. Friend give a firm commitment that he will not seek the view of the House about linkage through informal consultations but will put a linkage motion down on the Order Paper with the salaries motion so that we may vote upon it?

Mr. Short: I should need notice in order to seek advice on the first part of my hon. Friend's question. I do not know the answer. On the second part, if that

is the wish of the House, I shall be prepared to look at it.

Mr. Hall-Davis: Does the Leader of the House accept that the proposal to pay a pension related to a notional salary which has not been paid will impinge on one of the most sensitive areas of incomes policy and create a privilege for this House which will be gravely resented outside? Would it not have been more honest and less troublesome to have paid the £1,800 per annum flowing from the statutory policy of the last Conservative Government, coupled with observance of the social contract as laid down by the present Government, with the pension related to that actual figure?

Mr. Short: No. We are asking hon. Members to forgo part of the increase awarded by an independent review body, and it is only fair and just that this should not have repercussions on Members' pensions. The arrangements for this will be complicated, but I hope to bring them before the House in the near future.

Mr. Faulds: Does the Leader of the House realise that this is a typical piece of Wilsonian legerdemain which will simply lead to a greater abuse of the secretarial allowance than already exists? Does he expect other people to observe the £6-a-week limit? What cuts is the Cabinet to take?

Mr. Short: On the first point, I do not think there is any abuse of the secretarial allowance—

Mr. Faulds: Oh!

Mr. Short: An hon. Member must certify and sign a form to say that he has incurred the expenditure for which he is claiming.

Mr. Faulds: Some of us do.

Mr. Short: I do not think there is any abuse whatever, and I am surprised to hear my hon. Friend say that there is. I dealt with the question of the £6 limit in my first supplementary reply. The amount is fully in accord with the Government's pay policy.

Mr. Nicholas Winterton: The Cabinet's salary recommendations are an insult and a kick in the teeth to back-bench Members who have little or no salary outside this House. If the increase in the cost


of living is 77 per cent. and the Lord President is offering us 27 per cent., how does he suggest that hon. Members who are already living to the full extent of their salary are to cope with this minute pittance which he is offering?

Mr. Short: I understand the hon. Member's feelings and I do not complain about anything he said. Hon. Members are being asked to make a considerable sacrifice. As for the peculiar expenses of a Member of Parliament, we are accepting the Boyle recommendations in full.

Dr. John A. Cunningham: Does my right hon. Friend recognise that the behaviour of the Labour Cabinet has been akin to the behaviour of the worst kind of reactionary nineteenth century employer? Does he further recognise that its failure to consult this House and the fact that it has treated its own supporters with contempt are matters of great regret to many of us? Does he recognise that this whole debacle has meant the degrading of Parliament and the demeaning of Members and has destroyed any faith we could have in the working of the Boyle Committee? Does he also recognise that the Cabinet has not heard the last of this matter?

Mr. Short: I am quite sure that we have not heard the last of this matter, but to listen to my hon. Friend's comments one would think that I had announced a reduction in salary—

Mr. Winterton: That is just what the right hon. Gentleman has done.

Mr. Short: To listen to the comments of my hon. Friend anyone would think that I had announced a reduction, not an increase in salary. I have announced an increase of £1,250 in salary and a considerable increase in hon. Member's pensions and expenses allowances.

Mr. Tebbit: rose—

Hon. Members: Hear, hear.

Mr. Tebbit: Is the Leader of the House aware that it is a very unusual day on which I receive cheers from below the Gangway opposite? Could he tell the House whether it is now the policy of Her Majesty's Government that only those people who either have substantial private means or are prepared to live on a scale which is totally unsuitable and

indeed impossible to accommodate so as to do an MP's job—the rich and those prepared to accept near poverty, in some cases, for their families—are to come to this House of Commons?

Mr. Short: Certainly not, but there is a wider question behind what the hon. Gentleman has said. There is a case for looking at a differential salary for hon. Members who have outside interests.

Several Hon. Members: rose—

Mr. Speaker: Order. We have been told that these matters must be debated. It would appear from the exchanges today that we will have an interesting debate upon them.

Later—

Mr. George Cunningham: Because of the exchanges that have taken place on the Lord President's statement, some statements have been made implying that a decision has been taken by the Government on this matter and that that is the end of it.
I should like to ask for your clarification, Mr. Speaker, on the procedure of the House on this point. As I understand it, the form of resolution by means of which the House normally provides for the salaries and allowances of Members is unusual in that, technically, it is merely an expression of opinion and does not in itself authorise the expenditure to take place. Accordingly, for that reason, as I understand it—and it is on this point that I am seeking your confirmation—it is in order for any hon. Member to table an amendment, without that Member necessarily being a Minister of the Crown to increase or reduce the figure.
Particularly in the light of the degrading spectacle to which this House has just exposed itself, with Members of the House holding out their hands with a begging bowl to the executive, will you confirm, Mr. Speaker, that when the vote has been taken next week—whether or not there is a Division—it will be by a decision of this House that these recommendations, or any altered version of them, take effect? I am not getting at the Lord President, but I want to press upon Members of the House an understanding, which some do not seem to have, that the decision is taken here, so that after the vote next week no hon. Member who has


been expressing his irritation with great heat will have any complaint against the Government, because a majority of the House is able to change the suggestion that the Government make.

Hon. Members: And we will.

Mr. Speaker: I have listened with interest to what the hon. Member has said. When I see the resolutions and the action that is sought to be taken upon them, I will rule accordingly.

Mr. Cunningham: Further to that point of order, Mr. Speaker I am asking whether, if the resolution is in the normal form, I am correct in thinking—and I know that I am, since I have taken advice upon it—that it would be perfectly in order to table amendments.

Mr. Speaker: I have no intention of giving a hypothetical ruling. I will see the resolutions and then decide.

QUESTION OF PRIVILEGE

Mr. Tebbit: On a point of order, Mr. Speaker. I would be glad of your guidance.
Yesterday, the right hon. Gentleman the Prime Minister informed the House that it was not possible to make a statement at that time on the Boyle Report. I will not refer to the speculation which was endemic in the lunchtime newspapers and in yesterday evening's papers, but I must draw attention to this morning's Press in which, with the sole exception of The Times and the Morning Star, every newspaper correctly forecast what the Lord President would say today in this House. There was an element of speculation among the Press about them, but mostly the newspapers did not give any figures on what would happen about hon. Members' allowances. But the Daily Mirror, The Guardian, the Daily Express, the Daily Mail, the Daily Telegraph and the Sun all correctly forecast that the Lord President would today announce an increase in salary of £1,250 a year for Members.
It is clear that somebody had briefed the Press. It is quite clear that not even the Opposition Front Bench had been enabled to see the Boyle Report or to know what the Government statement

would be. Therefore, it is a fair assumption that it must have been somewhere within the Government, within a restricted circle, that this Press briefing was given.
I submit that this is a very clear case of contempt of this House and I submit that it is not the first of its kind, and because this is such a clear case, I believe that it would be right if you, Mr. Speaker, were to consider whether it should be referred to the Committee of Privileges and whether there should be an investigation on just how this information was leaked.

Mr. Edward Short: Further to that point of order. I agree with the hon. Member for Chingford (Mr. Tebbit). There is clear evidence of a leak from some Government source and certainly we shall look into this very urgently.

Mr. Speaker: The hon. Member for Chingford (Mr. Tebbit) raised this as a point of order. I was not quite clear whether he was raising it as a matter of privilege.

Mr. Tebbit: I shall be thankful for your guidance, Mr. Speaker, but I believe that it is a case of breach of privilege or contempt of this House. I should be grateful for your guidance on how this matter should be further progressed and for your ruling upon it.

Mr. Speaker: In that case I will consider the matter and give my opinion tomorrow.

PARLIAMENTARY ACCOMMODATION

The Lord President of the Council and Leader of the House of Commons (Mr. Edward Short): The House will recall that on 25th June 1973 two motions were approved, the first in favour in principle of a new parliamentary building in due course, and the second in favour of the particular design for the building by Messrs. Spence and Webster. The House was informed that no expenditure on the new building would be incurred before 1st April 1975 but that the intervening period would be used to develop detailed plans.
The Government recently reviewed the progress of the plans in order to decide whether we would be justified in going ahead with the scheme in the foreseeable


future, when its estimated costs had already increased to at least £30 million, excluding the site costs which had already been incurred.
We concluded that, in view of the economic difficulties we are currently facing, and in view of the commitment to the attack on inflation set out in the White Paper published last week, it would not be right to proceed with the scheme.
We propose accordingly that the architects' commission should be terminated immediately and that they should be fairly compensated. This decision is taken reluctantly, and I would like to take this opportunity of thanking the architects for the distinguished work which they have done over the past two years in extremely difficult circumstances and to say how sorry I am personally that it should end in this way.
I know that many hon. Members will be disappointed by this decision, in view of the shortage of adequate accommodation in the House. However, we did not feel that we could recommend proceeding with this project at a time when many highly desirable proposals for additional public expenditure at local and national level have had to be set aside. We also felt that it was right that hon. Members should make their own sacrifice at a time of acute economic difficulty.
In view of this decision, however, the Government recognise the added urgency and importance of finding other and cheaper means of improving the accommodation available to Members, bearing in mind the consideration currently being given to facilities for backbenchers by the Select Committee under the chairmanship of the hon. Member for Wokingham (Mr. van Straubenzee).
Considerable progress has, of course, already been made, and since 1967 some 210 extra rooms have been provided to accommodate about 350 Members. This includes the recent conversion of Norman Shaw (North) where, in addition to 89 new rooms for 128 Members, accommodation has been provided for some 130 secretaries and also for a number of supporting services.
Infilling within the Palace has contributed 101 rooms occupied by 160 Members; and Mr. Speaker has recently indicated that it might be possible for some

accommodation in the Speaker's Residence to be made available to Members. I have welcomed this generous offer and we are urgently investigating the possibilities. Useful additional accommodation has also been provided in Abbey Gardens and Dean's Yard. I believe that the standard of the new accommodation, particularly in Norman Shaw (North), has proved generally acceptable to Members.
If the House agrees, I think the best way of making further progress in present circumstances would be the adaptation of existing buildings on the parliamentary building site. I have particularly in mind Norman Shaw (South), which, subject to the need to rehouse properly the present occupants, could provide further accommodation for about 80 more Members and a similar number of secretaries within two years of the date of decision.
There are other possibilities for housing up to 240 Members and as many secretaries by rehabilitating existing buildings—St. Stephen's House; Palace Chambers; 1 and 2 Bridge Street. Rehabilitation could be achieved within five years of a decision to begin. There is also the possibility of some limited rebuilding within the site. All this requires consideration in detail and we must, in formulating proposals, have regard to the overriding need to limit expenditure at the present time.
The Government will submit proposals to the Services Committee as soon as possible and, if the House so wishes, these will include the conversion to the use of Members of the Norman Shaw (South) building. Progress depends very much on the resolution of our financial problems, but subject to this we would also he prepared in principle to consider the conversion of at least one of the other buildings on the site.

Mr. Peyton: The Opposition welcome that rather oddly timed statement. We congratulate the Government on bowing to the inevitable. We should also like to be associated with what the right hon. Gentleman said about sympathy with the architects.

Mr. Heffer: Is my right hon. Friend aware that many of us in any case were not in favour of the new building? We are delighted that the Government are not going ahead with it. Will my right hon. Friend consider the adaptation of


No. 1 Bridge Street? That building was well used by secretaries and Members of Parliament. Many of us felt that that building was preferable to the Norman Shaw building. Can we resume the use of that building, which is much more convenient to hon. Members, at the earliest possible moment? That would be the most positive move which the Government could make in that direction.

Mr. Short: I shall consider what my hon. Friend said.

Mr. David Steel: I was in favour of the new building and I was a member of the Committee responsible for it. I accept with some regret the decision which the right hon. Gentleman announced today. Does the Leader of the House accept that Members should be accommodated as near as possible to this House and that eventually Norman Shaw (North) should be given to other people and the buildings nearer to the Chamber should be used for Members?
Is the right hon. Gentleman aware of the existence of a report on the conversion of No. 1 Bridge Street which was made some years ago and which must therefore still exist? Will he consider the possibility of including in some of the buildings immediately across the road other catering facilities for the use of Members of Parliament during Sessions and for the use of tourists and commercial enterprises during the summer?

Mr. Short: I shall have a proposal to put to the House concerning the catering department. I shall look at the other points raised by the hon. Gentleman. I am not sure that the hon. Gentleman's views on Norman Shaw (North) represent those of the majority of hon. Members. However, I have an open mind and I should welcome the views of hon. Members on the Norman Shaw (North) building.

Mr. Ward: I welcome my right hon. Friend's statement, which will also be noted by local government. What is his estimate of the cost in fees and other charges resulting from the abandonment of this scheme?

Mr. Short: I cannot answer that question without notice. However, I shall

write to my hon. Friend, giving him the figures.

Mr. Cormack: I thank the Lord President for the best statement he has ever made to this House. I assure him that many hon. Members do not view it with any regret. We merely regret that some of the views put forward in the March 1973 debate were not accepted earlier. We welcome the agreement to proceed with the Norman Shaw building and with No. 1 Bridge Street. I urge one point. Will the right hon. Gentleman make sure that hon. Members are not moved into new accommodation until drilling has ceased?

Mr. Short: I apologise for the drilling. I have looked into that. I am sorry that it occurred. I shall bear in mind the other points made by the hon. Gentleman. I agree with his point about the buildings he mentioned.

Mr. Guy Barnett: Is my right hon. Friend aware that I welcome his statement? The conversion of the Norman Shaw building shows what can be done with old buildings. May I ask him to observe two priorities in future conversions? First, in the interests of efficiency, hon. Members and their secretaries should find themselves near each other so that long journeys are not necessary every time work needs to be done. Secondly, we should begin to provide special accommodation for research assistants so that they are not subject to constant interruptions from typists.

Mr. Short: I am grateful for what my hon. Friend said about the Norman Shaw conversion. It reflects great credit on those who carried it out and on my right hon. Friend's Department, which planned the work. It is a splendid piece of work.
My hon. Friend mentioned research assistants. That is an important point which we must consider when we look at the report of the Select Committee of the hon. Member for Wokingham, dealing with assistance for private Members.

Mr. Cryer: I congratulate the Lord President on his statement, which will lead to a saving. May I urge him to look at this building with a view to expanding the accommodation? Many rooms are used by their Lordships. Those rooms are many in number and are opulently


furnished. That would provide the necessary accommodation as a preliminary to eradicating their Lordships in the long run. At the moment, all they seem to do is to emasculate Labour Government legislation.

Mr. Short: My hon. Friend raises a much wider question. That is a narrow question of accommodation. When we took over the control and management of the building in 1965, we made a demarcation settlement with the other place. It looks after its own accommodation. We do not interfere with that.

Mr. Dalyell: As Mr. Speaker is being generous, can some tactful hints be dropped in the direction of the Lord Chancellor? Is it a fact that he has 56 rooms? Is it not also a fact that 11 years ago some of us discovered in an area of 590 sq. ft. a man pressing his trousers? In the past decade that area of the Palace of Westminster has not been altered. There is scope for discussion with their Lordships on this matter.

Mr. Short: I discovered people carrying out even more essential tasks in less than 590 sq. ft. space in this building. There is a great inequity in the way in which the accommodation is shared out here. The Chairman of Committees is paying great attention to this at present. I agree that there is a need to share out our accommodation more equitably. I paid a tribute to you, Mr. Speaker. We are all extremely grateful to you for offering to make some of the accommodation on the upper floor available to hon. Members. That will be greatly appreciated by them.

Mr. Amery: Bearing in mind that the Labour Government of 1969 to 1970 was minded to demolish the Norman Shaw building, will the right hon. Gentleman pay a tribute to the decision of the valiant Minister who decided to maintain it for public use—to wit the right hon. Member for Brighton, Pavilion?

Mr. Short: As far as my recollection goes, my right hon. Friend referred the matter to an inquiry.

Mr. Greville Janner: Is my right hon. Friend aware that this entire discussion has taken place without

reference to the disgraceful situations in which so many of our staff work? When we reconsider the allocation of space, will my right hon. Friend take into account the needs of those who serve the House—not least the police in the mediaeval squalor of that disgraceful place at St. Stephens, which my right hon. Friend has been good enough to see. Will he give some priority to the consideration of our staff and some care to the fact that this House is imposing on people standards which they would not accept from any other employer?

Mr. Short: As I have just said, there is a great deal of inequity in the way in which we share out our accommodation among the various people who work here in one capacity or another. We have to effect great improvements in this.

Mr. Robert Cooke: Will the right hon. Gentleman make it clear to the House that the frontier between the Lords and the Commons was drawn as a result of the right hon. Charles Pannell's wresting the Palace from the Lord Great Chamberlain and that there is now a red line which we cannot cross? Will the right hon. Gentleman also make it clear that the Services Committee will begin urgently to consider all these matters and that with his agreement we could start next Tuesday? The prime needs of the staff will be uppermost in our minds.

Mr. Short: The hon. Gentleman spends a great deal of time on these matters and I am sure that the House is greatly indebted to him for the work he does. He and I discuss these matters constantly, and we shall bear in mind all the comments that have been made in the exchanges today.

BILL PRESENTED

REMUNERATION, CHARGES AND GRANTS

Mr. Chancellor of the Exchequer, supported by Mr. Secretary Crosland, Mr. Secretary Foot and Mrs. Secretary Williams presented a Bill to limit liability for certain remuneration; to enable certain provisions of Part II of the Counter-Inflation Act 1973 to be extended and to amend section 2 of that Act; to enable grants to local authorities to be reduced in certain circumstances; to enable housing subsidies to be increased and to


provide for a new grant to local authorities in Scotland; and for connected purposes: and the same was read the First time; and ordered to be read a Second time tomorrow and to be printed [Bill 215].

BUSINESS OF THE HOUSE

REMUNERATION, CHARGES AND GRANTS BILL

Ordered,
That, notwithstanding the practice of the House, notices of Amendments, new Clauses and new Schedules to the Remuneration, Charges and Grants Bill may be accepted by the Clerks at the Table before the Bill has been read a Second Time.—[Miss Betty Boothroyd.]

FINANCE (No. 2) BILL

Ordered,
That the Third Reading of the Finance (No. 2) Bill may be taken immediately after the consideration of the Bill, notwithstanding the practice of the House as to the interval between the stages of Bills brought in on Ways and Means Resolutions.—[Miss Betty Boothroyd.]

ELECTRIC LIGHTING

4.21 p.m.

Mr. Cyril Smith: I beg to move,
That leave be given to bring in a Bill to amend the Electric Lighting (Clauses) Act 1899.
The object of the Bill is to repeal Section 27(3) of the Electric Lighting (Clauses) Act 1899, which allows electricity boards to require a deposit in cash or security or guarantee against future supplies. My contention is that the clause is being used in a disgraceful, shameful and inhuman manner by many electricity boards and that because of that the House should remove the legal powers contained in the 1899 Act.
Hundreds, and probably thousands, of letters are being sent out by electricity boards to certain of their consumers. The electricity boards are attempting to place an intolerable burden on a section of the community, usually a section least able to bear that burden.
I have evidence that letters are being sent to three classes of user. The first class is consumers who become responsible for the first time for the payment of an electricity account. That usually applies to first-time dwelling purchasers, often young couples who are starting out in life, or to a consumer who moves from one area to another. The second category consists of consumers who have been slow or erratic in payment of their accounts. The third category consists of consumers who have had their supply disconnected and have requested reconnection. I am concerned for all three categories, but particularly for the first two. I have indisputable evidence of many cases, not only in my constituency but in others, in which the law is being used in this disgraceful manner.
In my constituency a woman with three children, who does not owe, and has not owed, the electricity board one penny, but who paid her previous account with some difficulty, within seven days of paying that account had a demand for a deposit for £85 which had to be paid in seven days, otherwise the electricity supply to her home would be cut and she would have to pay reconnection charges. I stress that the woman did not owe one penny of her electricity account when that threat was made.
I could produce evidence from many societies which have written to me confirming that such letters have gone out to many people, particularly in Yorkshire, the North-West and the Midlands. I have letters from several social service departments, the Family Service Unit, the Catholic Children's Rescue Society, the Heatherbank Rights Centre, the Community Relations Council and the Child Poverty Action Group.
The threatening of the disconnection of electricity supplies within seven days unless substantial deposits are placed with the board is the language of dictatorship. It is the language of bureaucratic bullies who sit in ivory towers at our expense and have no knowledge of human experience and poverty.
The people to whom the letters are sent are usually in the lower income groups. The Government have a responsibility to protect those people from such disgraceful conduct. This is a special issue at a time of raging inflation. I know that a great many letters have gone out in the North-West area, and I am indebted to the Sunday Telegraph for the publicity it has given to this matter, which has given me the opportunity to hear of many more cases.
The interest payable on such deposits is autocratically fixed by the electricity board at between 6½ per cent., and 8 per cent., according to the board involved. That percentage figure is derisory and grossly unfair at present interest rates.
The removal of Section 27(3) of the 1899 Act would remove powers from the electricity boards. It would not remove the power of disconnection, which is, equally, causing serious problems to social services departments of local authorities. That has been the subject of another Ten-Minute Rule Bill moved by the hon. Member for Birmingham, Perry Barr (Mr. Rooker), which I supported and voted for.
The Bill is a vitally important one which will affect hundreds of poorer families. I am not seeking to excuse people who do not pay their accounts properly, but I know that quarterly accounts cause budgetary problems for poorer people. If they have to choose between spending money and saving it to pay a future account many people feel

they have no alternative but to spend it on essentials. People who do not understand that basic fact have little idea of how working families exist.
The electricity boards already have a remedy for dealing with cases of bad payment or non-payment; namely, by the installation of prepayment meters. They should use that remedy rather than the bullying methods they are now using. The disconnection of supplies, especially when electricity is the sole means of supplying heat and/or light is a serious step to take. To take it when there are arrears is one thing, but to take it when there are no arrears is another. The reluctance of boards to install meters is well-known. I have had great difficulty in that respect when I have tried to act on behalf of my constituents. It is time that electricity boards became humanised. Until they learn how to use rather than abuse the power they have, that power should be removed.
I very much hope that the Minister—to whom I had the pleasure of speaking last evening about this—will look into the matter urgently. The Child Poverty Action Group and many other bodies will give him all the information he needs. If the Government are genuinely concerned—as we are assured they are—for the poorer members of our society, pensioners, low wage earners and so on, they will find time for this short Bill, which is in the interests of humanity.

4.28 p.m.

Mr. John Wells: I oppose the request made by the hon. Member for Rochdale (Mr. Smith) for leave to bring in a Bill, in no way because of the sentiment of what he said but because of the action of the hon. Gentleman and many colleagues who seek to bring in Ten-Minute Rule Bills at this time of the year when there is no prospect of their becoming law in the current Session, and the only result is the raising of the hopes of tens of thousands of simple people. Everything that htehon. Gentleman said could have been said in a memorandum to the Government, and the Government could have dealt with the electricity boards or brought in Government legislation.
Indeed, the hon. Gentleman could have brought in a Bill behind the Chair weeks or months ago. Had he done so, it would


have had an opportunity of becoming law without his having the bonus of publicity in the House. I deplore the publicity-seeking which gives false hope to people who are unlikely to benefit, and I deplore the conduct of the hon. Gentleman and many other colleagues who behave in this way and raise false hopes.
Turning to the substance of what the hon. Gentleman has said, I hope that the Minister will take note of what was said to him privately last night. If Members of Parliament feel that they wish to take some action for the good of the people, they should get it done privately in a way that will ensure that action is taken instead of merely publicity-seeking when nothing will happen. In that way they raise people's hopes without substance. I oppose the motion.

Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nomination of Select Committees at commencement of Public Business), and agreed to.

Bill ordered to be brought in by Mr. Cyril Smith, Mr. A. J. Beith, Mr. Stephen Ross, Mr. David Penhaligon, Mr. Geraint Howells, Mr. David Steel, Mr. Emlyn Hooson and Mr. Russell Johnston.

ELECTRIC LIGHTING BILL

Mr. Cyril Smith accordingly presented a Bill to amend the Electric Lighting (Clauses) Act 1899: and the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 216.]

WAYS AND MEANS

VALUE ADDED TAX (GAMING MACHINES)

Resolved,
That charges to value added tax may be imposed and other provision made in respect of the playing of games of chance by means of machines.—[Mr. Joel Barnett.]

CAPITAL GAINS ON CERTAIN STOCK DIVI- DENDS (CAPITAL GAINS TAX AND CORPORATION TAX).

Resolved,
That charges to capital gains tax, and to corporation tax on capital gains, may be imposed in connection with provisions about the treatment under Part III of the Finance Act 1965 of certain cases in which, on or after 6th April 1975, a company issues share capital in respect of shares in the company held by a trustee.—[Mr. Joel Barnett.]

Orders of the Day — FINANCE (No. 2) BILL

As amended (in the Committee and in the Standing Committee), considered.

4.32 p.m.

Sir Geoffrey Howe: On a point of order, Mr. Deputy Speaker. I have given notice to the Chair as well as to Treasury Ministers. My point of order concerns the rather remarkable way in which the Government seek to handle changes which they intend to make in the coverage of the higher rate of value added tax.
You will recollect, Mr. Deputy Speaker, that the Finance Bill, as originally introduced, proposed under Clause 17 and Schedule 7 to impose a 25 per cent. rate of VAT on a wide range of goods, and that that rate should take effect from 1st May. That rate has been charged since then on those goods originally identified by virtue of the Provisional Collection of Taxes Act 1968. Many debates on this subject took place in Standing Committee and many amendments were moved. For example, there were amendments to remove from the proposed coverage of the higher rate of tax such things as navigational equipment and safety equipment for the marine and aviation industries.
The Government gave undertakings to consider many of the points that were raised. Therefore, one would expect the House to have the opportunity of resolving what should or should not be done. How far have the Government met their undertakings by providing the opportunity of considering amendments moved on Report? On Monday and again today the Financial Secretary to the Treasury, in answer to his hon. Friend the Member for Burnley (Mr. Jones), indicated a different way of proceeding. What the Government propose to do is to propose no change in the Finance Bill on Report but to make use of a statutory instrument to be made under Clause 17 of the Bill as it now stands, to take effect from 11th August. From that date onwards, in so far as the Government want to exempt certain goods from the higher rate of VAT, the statutory instrument will be effective. The higher rate will continue to be charged from now until then.
The effect of that procedure will be to leave the trade in a state of limbo in goods which will be dealt with in this way from the time any announcement is made until 11th August. More important from the point of view of the House, this procedure will deprive the House of the opportunity of considering the Government's amendments and of voting upon them. We shall be able to consider the matter only on a negative resolution procedure after the recess.
I understand that the Financial Secretary may be taking some steps further to clarify his intentions this afternoon. I appreciate the difficulties which are said to arise under the Provisional Collection of Taxes Act, but I do not understand how the position is any different from that which arose with purchase tax in 1948 and 1968.
For example, in 1948, when there was a widespread rearrangement of purchase tax, after the proposed rearrangement had been discussed in Committee the then Economic Secretary to the Treasury announced that concessions would be introduced on Report. Those concessions involved reducing the rate of purchase tax on various goods after the new higher rates had been levied from 9th April 1948 onwards. That concession was carried into the Bill on Report. An amendment was carried to the effect that the goods listed, the goods which were to be relieved of the higher rate, were deemed to have been charged on the higher rate from 9th April to 15th June. The concession took effect immediately from 16th June. The amendment had the effect that the Government were not required to repay tax collected at the higher rate. On that occasion the House had the chance of deciding the scope of the changes proposed on Report.
Exactly the same thing happened in 1968 when a small group of items which had not previously been charged with purchase tax were taxed at 50 per cent. from 20th March 1968, the day after the Budget. They were again exempted on second Government thoughts from 1st July 1968 by Section 5 of the Finance Act. In other words, the Finance Act eventually included both the authority to charge the tax and the authority to cease charging it. On that occasion the House


had the opportunity of considering Government amendments that were tabled to fulfil undertakings given in Committee.
Do the Government intend to proceed in the way in which they have indicated—of course, there may be some explanation of which we have no anticipation—and to revise coverage, changing the system by relying on a statutory instrument yet to be made under a power yet to be conferred, thus denying the House the right of considering the precise scope of the tax to remain on the statute book?

The Financial Secretary to the Treasury (Mr. Robert Sheldon): I beg to move,
That the Finance (No. 2) Bill, as amended, be considered in the following order, namely, new Clauses, Amendments relating to Clauses 1 to 5, Schedule 1, Clause 6, Schedule 2, Clauses 7 and 8, Schedule 3, Clauses 9 to 14, Schedule 4, Clause 15, Schedule 5, Clause 16, Schedule 6, Clause 17, Schedule 7, Clauses 18 to 33, Schedule 8, Clauses 34 to 37 and 39 to 52, Schedule 9, Clauses 53 to 62, Schedule 10, Clauses 63 and 64, Clause 38, Clauses 65 to 67, Schedule 11, Clause 68, Schedule 12, and Clauses 69 to 72, new Schedules, and Amendments relating to Schedule 13.
It may be for the convenience of the House, Mr. Deputy Speaker, if at this point in our proceedings I make a short statement about the consideration which my right hon. and hon. Friends and I have given to the case for amendments to Schedule 7 to the Bill to delete certain items from the scope of the higher rate of VAT.
As I explained in a Written Answer I gave on Monday 14th July to my hon. Friend the Member for Burnley (Mr. Jones), in col. 349–50, certain legal and technical difficulties are likely to arise if further amendments deleting items from Schedule 7 are made during the passage of the Bill through the House. For these reasons we have not tabled on Report any Government amendments which would have the effect of limiting the scope of the schedule. Undertakings were, however, given in Standing Committee to reconsider the coverage of Schedule 7, and I have been able to satisfy myself in the light of further examination that a sufficient case has been made to justify exclusion of certain items from the higher rate.
The items concerned are as follows: in Group 2, radios of a kind used solely on boats and designed to be operated solely on radio frequencies designated for distress calls at sea; and also radio com-

munication and navigation equipment of a kind used solely on aircraft and complying with the requirements of the Civil Aviation Acts. In Group 3, compasses, echo sounders and radar sets for boats; and also the classification and survey of aircraft. In Group 6, goatskin rugs.
I propose to implement these exclusions by using the powers to be conferred on the Treasury by Clause 17(2) of the Bill to make an Order amending the Schedule with effect from Monday 11th August. This date has been chosen because it is the first Monday after the date by which the VAT provisions of the Bill have to become law under the Provisional Collection of Taxes Act procedure, and I think it would be convenient to many traders, particularly retailers, if the exclusions were to take effect on a Monday.
The reliefs I have announced have, of course, still to be the subject of legal drafting and the Treasury order itself will be subject to negative resolution procedure. I recognise that we have not been able to meet every case that was urged on us in Standing Committee, but where we have not been able to do so and hon. Members succeed in catching your eye, Mr. Deputy Speaker, to press their arguments on us again during our consideration of Schedule 7, my hon. Friend the Minister of State and I will be glad to explain our reasons as well as to listen to and consider all the arguments put forward.
Copies of this statement are available to hon. Members in the Vote Office.
Perhaps I could give an idea why the present procedure is necessary and what it means in practice. The provision is necessary because of the complications of the operation of the Provisional Collection of Taxes Act 1968. We intend to examine the situation to see whether the procedure can be made to correspond more closely to what has happened in parliamentary terms in the past.
Let me say to those who may be disappointed that Government amendments have not been set out in the usual way that the statutory instruments are in their own way equivalent to Government amendments. They are set out in a form which is as capable of scrutiny as is an amendment, and when the statutory instrument is put before the House further consideration will be possible.
Nothing I have announced today will prevent Treasury Ministers from listening with great care, and sometimes concessions can be made—if not by legislation, by means of subsequent orders in the House. What is said in the various debates on amendments which we are yet to discuss is capable of influencing the Government and of leading to further discussions with traders and to their being acted upon. Therefore, we are not depriving the House of any close scrutiny which otherwise would have ensued. Hon. Members have available to them the same kind of scrutiny as they have had previously. I regret the change of procedure necessitated by the operation of the 1968 Act, but we hope to put tile situation right on future occasions.

Sir G. Howe: Does the Financial Secretary agree that by following this method, we shall have no chance of tabling amendments to provisions introduced by the Government, or indeed of discussing them one by one? Is it not the case that the House will have no opportunity to examine statutory instruments until after the Summer Recess?
Furthermore, will not the new procedure involve delay in producing the relief from tax until 11th August and will not trade in those items be affected between now and then? Can the Minister explain why it is not possible, notwithstanding the original wording of the 1972 Act, to proceed as was done on two occasions in respect of purchase tax by tabling amendments to, say, Clause 17 to the effect that goods listed originally but no longer to be listed should be deemed to have been charged at higher rates from 1st May to tomorrow's date to enable concessions to take effect from then? The procedure was established, on each occasion by a Labour Government, on 22nd June 1948, set out in column 1143 of the Official Report, and 8th May 1968, set out in column 595. Why cannot we proceed in exactly the same way on this occasion?

4.45 p.m.

Mr. Sheldon: May 1 reply to the point made about purchase tax? The right hon. and learned Member will be aware that in regard to VAT a large number of taxable traders are involved. This leads to complications, particularly in light of the way in which credit mechan-

isms work. What was possible under the simpler scheme of purchase tax is not possible under VAT.
In regard to the delay in tax terms, there are always problems of this nature when these matters are reconsidered by the House. This is a problem with which we must live. But we accept that it is a way in which we can ensure reconsideration of essential decisions which the House of Commons wishes to take.
As for a close examination of amendments, the right hon. and learned Gentleman will be aware that points made in Committee are the subject of amendments which we shall be discussing a little later. They can be thrashed out again at that stage. If clarification is sought, I hope that I shall be able to assist hon. Members.

Mr. Hector Monro: The Government have introduced into the House a strange situation and few hon. Members will be happy at the outcome. I appreciate that the Government say that amendments will be in order for discussion, but I should like to ask Mr. Deputy Speaker whether the selection of amendments is pointless in view of what has been said by the Financial Secretary. I should not like to feel that we are being told that we cannot go in depth into anomalies and principles in connection with boats and aircraft and other matters about which we are gravely concerned.

Mr. Deputy Speaker (Mr. Oscar Murton): The selection of amendments is a matter for Mr. Speaker.

Mr. Jerry Wiggin: The House faces a difficult situation. My hon. Friend the Member for Dumfries (Mr. Monro) has mentioned a vitally important point which will materially affect several industries, a large number of people and large sums of money. Although I appreciate that you, Mr. Deputy Speaker, are to some extent in loco parentis in the Chair, I do not see how the House will be able to proceed without some ruling on selection dealing with the item of boats and aircraft.
The Financial Secretary has already said that these are matters on which there will be concessions. However, I am worried on two fronts. When these


orders are debated, presumably after the Summer Recess, the House may reject or accept them but we shall not be able to amend them. Therefore, we cannot in the ordinary way table amendments to Government provisions. Even following Government concessions, there are a number of detailed matters of great importance which arise. It is all very well for the Minister to say that the Government will listen to our arguments. That may be true, but so far the Government have refused to see representatives of the boating and aviation industries. Although the small concessions are valuable, it is strange that we shall not be able to elaborate on arguments which we deployed upstairs in Committee. This is a most unsatisfactory situation of confusion and muddle and the Government have put themselves in this mess. I hope that we shall have a ruling on selection, because that might clarify a murky situation.

Mr. Deputy Speaker: This might be a convenient moment to make some comments. The House will appreciate the reason that Mr. Speaker is not in the Chair at this moment, but, on the other hand, the question of selection is a matter for Mr. Speaker. I remind the House that Schedule 7 is some way ahead in the Bill, and selection has not gone as far as that, nor, so far as I know, was any suggestion made that it should.

Mr. Nicholas Ridley: I should like to ask why the Government have adopted this procedure on this occasion whereas in Committee they made changes to Schedule 7 by moving amendments. Why is it not possible to use the same procedure now as was used on that occasion?
One reason why that should be so has already crossed my mind and it is that in Committee we were unable to move amendments which would have had the effect of increasing taxation. Therefore, we were unable to extend the scope of the Schedule 7 provisions to other items. I have tabled an important amendment which would have suitably and wisely extended the scope of the charge to some other items. The Chairman in his wisdom did not select it because it represented an increase in taxation. Of course, we would have been able to move amend-

ments suggesting increases in taxation if this procedure of tabling an order had been employed, because so far as I know the order procedure would allow the scope of the charge to be extended.
Obviously the Government's trick has been to prevent us from using this device in Committee by seeking to use the amendments procedure but to allow the use of the order procedure as soon as we are out of Committee, when we are not in a position to amend the order.
The Government know that their borrowing requirement is excessive and that Opposition Members have consistently tried to help the Government by suggesting ways of increasing taxation. We were prevented from doing this in Committee and the Government have obviously deliberately used this rather shoddy procedural device to frustrate the Opposition in their attempts to save the Government from the economic morass into which they are sinking due to their own extravagance and incompetence.
The Bill having left Committee, the Government are dealing with the matter in a totally different way. The whole procedure is deplorable and I should like to add my vote of protest.

Mr. Wiggin: Further to your ruling Mr. Deputy Speaker. We certainly understand your personal position and precisely the reason why you are in the Chair at present. However, will it be possible to convey a message to Mr. Speaker so that at some time convenient to him, but especially before the House rises today, we can be told that he will look upon the selection of amendments on Schedule 7 with favour, bearing in mind the considerable feeling there is about this matter by the Opposition?

Mr. Deputy Speaker: I shall put the hon. Gentleman's mind at rest quickly. I am sure that Mr. Speaker is seized of the point—in any event he always reads Hansard. Therefore, I do not think that I can prejudge Mr. Speaker's decision about Schedule 7.

Mr. Wiggin: Further to that matter, Mr. Deputy Speaker. It must be made clear that by the time Hansard is printed it will be far too late if Mr. Speaker's decision were to run contrary to our wishes, because we are to proceed with the Bill tomorrow. Indeed, Mr. Speaker


will be making his selection tomorrow morning. If we are to be deprived of the opportunity to debate this important matter, I suspect that it may take a great deal of time to get through the motion and other matters now.

Mr. David Howell: We all appreciate your own position, Mr. Deputy Speaker, and the difficulties of getting an immediate ruling. However, we are placed in a very awkward situation. There is a long list of items in this schedule which we discussed in Committee and which the Minister concerned undertook to look again at. The items range from freezers to secondhand goods, to components for boats, repair jobs, generators, trailers, the classification of aircraft, mobile shops, film splicers, antiques and many more as well. All these are very important matters to hon. Members on both sides of the House and we obviously want to press amendments on them.
If there were any suggestion that, by the procedure that the Government Front Bench is recommending, we might be denied the opportunity to press these amendments because they were considered to be either out of order or unsuitable in view of the way in which the Government are handling the situation, we should be placed in a situation in which we should not be ready to accept the procedure that the Government are putting to us.
If the ruling were to go in an unfavourable way, from the point of view of those who want to put forward the case on these issues, we should be deprived of the opportunity to press amendments on matters of very great interest in tomorrow's debate. Therefore, I think we should, without unduly pressing you in any way, ask you to consider enabling us to have a ruling on this matter very soon so that we may formulate our attitude to these very controversial proposals that the Government are putting forward for handling the mess and chaos that they have made of the matter so far.

Mr. Deputy-Speaker: I have listened to what the hon. Member for Guildford (Mr. Howell) has said. I shall certainly convey his views and the views of other hon. Gentlemen to Mr. Speaker as soon as it is conveniently possible to do so.

Question put and agreed to.

New Clause 5

VAT: GAMING MACHINES

(1) Where a person plays a game of chance by means of a gaming machine, then for the purposes of value added tax (but without prejudice to subsection (2) below) the amount paid by him to play shall be treated as the consideration for a supply of services to him.

(2) The value to be taken as the value of supplies made in the circumstances mentioned in subsection (1) above in any period shall be determined as if the consideration for the supplies were reduced by an amount equal to the amount (if any) received in that period by persons (other than the person making the supply and persons acting on his behalf) playing successfully.

(3) The insertion of a token into a machine shall be treated for the purposes of subsection (1) above as the payment of an amount equal to that for which the token can be obtained; and the receipt of a token by a person playing successfully shall be treated for the purposes of subsection (2) above—

(a) if the token is of a kind used to play the machine, as the recepit of an amount equal to that for which such a token can be obtained;
(b) if the token is not of such a kind but can be exchanged for money, as the receipt of an amount equal to that for which it can be exchanged.

(4) In this section—
game of chance" has the same meaning as in the Gaming Act 1968; and
gaming machine" means a machine in respect of which the following conditions are satisfied, namely—

(a) it is constructed or adapted for playing a game of chance by means of it; and
(b) a player pays to play the machine (except where he has an opportunity to play payment-free as the result of having previously played successfully), either by inserting a coin or token into the machine or in some other way; and
(c) the element of chance in the game is provided by means of the machine.

(5) This section shall come into force on 1st November 1975.'.—[Mr. Robert Sheldon.]

Brought up, and read the First time.

Mr. Sheldon: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this new clause we may discuss the following amendments:

No. 5, in Clause 4, page 5, line 4, leave out subsection (2) and insert:
'(2) In section 24 of that Act (holiday season licences) for paragraphs (a) and (b) there shall be substituted the following:—

"(a) the licence shall be one which authorises the provision only of penny


machines up to a number specified in the licence, or of twopenny machines up to number so specified, or of both penny and twopenny machines up to numbers respectively so specified; and
(b) the duty on the licence shall be £7·50 for each penny machine and £15 for each twopenny machine".'

No. 6, in page 5, leave out lines 4 and 5 and insert:
'(2) In section 21(2) of that Act, for paragraph (b) there shall be substituted the following:—
(b) a holiday season licence (for twopenny machines only) for the period from 1st March in any year to the last day of February next following, being a licence which authorises the provision of machines on premises on any day during the period from 1st March to 31st October, and on Saturdays, Sundays and Statutory holidays only during the remainder of the period for which the licence is granted.".

(2A) In section 24 of that Act (holiday season licences) for "penny" there shall be substituted "twopenny" and for "£15" there shall be substituted "£10".

(2B) In sections 25(5) and 26(4)(a) of and paragraphs 8(3) and 12 to that Act, for "penny" wherever occurring there shall be substituted "twopenny".

(2C) In section 27(2) of that Act, for "penny machine" there shall be substituted "twopenny machine", and after "single penny" there shall be inserted "or (d) a single twopenny coin".

(2D) In paragraph 5(3) of Schedule 4 to that Act, for "31st October" there shall be substituted "the last day of February".'.

No. 7, in page 5, line 5, at end insert:
'(3) In section 21(2) of that Act, for paragraph (b) there shall be substituted the following:—
(b) a holiday season licence (for penny machines only, or for twopenny machines only, or for a combination of penny machines and twopenny machines only) for the period from 1st March in any year to the last day of February next following, being a licence which authorises the provision of machines on premises on any day during the period from 1st March to 31st October, and on Saturdays, Sundays and Statutory holidays only during the remainder of the period for which the licence is granted."'.

No. 8, in page 5, line 40, after '(2)', insert (2A), (2B), (2C), (2D)'.

Mr. Sheldon: New Clause 5 provides that facilities for the playing of a gaming machine constitute a supply of services, the consideration for which is the amount that will be paid into the machine. The new clause provides that the VAT calculation is made on the basis of the net

takings of the machine, that is the money that is actually paid into the machine less the amount of winnings. This will be the general rule except where goods are given in exchange for tokens won from the machine. In that case the input tax on the goods will be deductible in the usual way, and to calculate VAT on the net take would in effect give double relief from VAT. That is the general position of the new clause.
I think that the intention of the new clause is quite clear, but as it is being taken with the amendments, it might be for the convenience of the House if I responded to the various points that will be made in the debate and the many points that I know will arise on the amendments and the new clause.

Mr. Wiggin: My name appears on a number of amendments which I shall attempt to move, but first I should like to comment on new Clause 5. The British Amusement Catering Trades Association represents a very large majority of the people who manufacture and operate these machines. It carries out that task as I am sure the Treasury Ministers will agree, with considerable lucidity and skill.
However, that association takes the view that this clause is merely a small contribution to justice. It is a welcome concession, but it is only a relatively small means of helping this industry. I do not think anyone would claim that the industry is of vast material importance to the national well-being, but it provides a considerable amount of revenue to the Treasury and, of course, a certain amount of employment in constituencies such as mine where not only are these machines used by holiday makers for entertainment purposes but they are also manufactured in quite large numbers and exported abroad.
The Financial Secretary's assessment of the new clause is correct. The levying of VAT on each coin inserted into a gaming machine or an amusement-with-prizes machine is, of course, always done on the residue after the prizes have been paid back. Therefore, VAT on gaming machines is to all intents and purposes a tax on the machine operator. It is not, as in most other cases and as the tax was envisaged, a tax on the user or consumer of the service.
5.0 p.m.
The purpose of the amendments is to make it possible for seaside arcade operators, in particular, to increase their earnings to meet the heavy burden of VAT.
The trade has calculated that the effect of the proposal to levy VAT on the takings of machines will double the tax that is currently being borne, even after due allowance has been made for the Government's proposal to make some slight reduction in gaming machine licence duty.
Regarding premises used wholly or mainly for the purpose of amusement—for example, seaside arcades—the whole of the operator's overheads must come from machine earnings. The proposed combination of VAT and gaming machine licence duty will in most cases eat up 40 per cent. of what is left to the operator after meeting overheads. This is a swingeing increase which, I am sure, is quite disproportionate to the real intentions of the Treasury even in its most grasping mood. The British Amusement Catering Trades Association has taken up the problem behind the scenes with the Treasury hoping that something could be done to enable seaside arcade operators in particular to bear the new additional tax by making it possible for them to earn more money.
A holiday season licence permits the operation only of penny machines from 1st March to 31st October. The proposed rate of duty is £7·50 per machine. The first effects of the amendments would be to permit the operation under a holiday season licence of penny machines at the proposed rate of £7·50 and 2p machines at the higher rate of £15 per machine.
Secondly, the operation of machines would be allowed under a holiday season licence at any time between 1st March and 31st October, as now, and additionally on Saturdays, Sundays and public holidays during the rest of the year. It is in this widening of the use of machines that to some extent a concession is being sought.
I should emphasise that the present restriction on the use of penny machines has been outdated by the effects of inflation. The amendments can be advantageous to the Treasury only because they

would have the effect of producing more revenue from both the gaming machine licence duty and VAT. That is the difference between these amendments and amendments which were tabled in Committee.
The objections raised by Treasury Ministers in Committee boiled down to the fact that they did not agree with my figures. They would not accept that the revenue position was as the trade proposed. But are they prepared to argue over these amendments which would seem to have the effect of not only increasing, not reducing, revenue but of creating enough income for the operators to pay this swingeing increase in tax.
The seaside arcade operator is a fairly innocent person. I do not think that he is out to sop the British people with the evils of gambling. I am sure that hon. Members will remember from their childhood days, as those with children of the age who enjoy going on seaside piers know, that these machines give a considerable amount of relatively innocent entertainment. They also provide a considerable amount of duty to the Treasury. I hope, therefore, that these relatively small amendments, of no massive commercial or fiscal importance, but which will mean a good deal to a small section of the community, will be found acceptable by the Government.

Sir Anthony Meyer: I have no interest to declare, my youngest daughter now having passed the age at which she spent large sums of money on these machines.
I speak at the request of amusement operators in my constituency whom I know well and who are as decent a bunch of chaps as one could hope to find.
I do not want to go into technical details, because they were largely thrashed out in Committee. Indeed, my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) has covered the technical side so far as it is appropriate to do so.
I want to deal with only one aspect of this matter. My hon. Friend spoke of enabling seaside operators to operate over a longer period during the year. In most British seaside resorts the season is distressingly short, and that has a large number of consequences. One is an


appallingly high unemployment rate during the winter months. Anything which can be done to lengthen the season is clearly desirable on many grounds if it can be done without any great cost to the revenue. As has been pointed out by my hon. Friend, any reduction in the rate of taxation would be more than compensated by higher turnover. Therefore, it is desirable that anything that can be done to lengthen the season should be done.
I know that some hon. Members—I do not think that any are present at the moment—regard seaside amusement arcades as places of sin into which no respectable man, woman or child should be admitted. That kind of mentality flourishes occasionally within the more puritan element of the Socialist Party. It is tempting to say that people should spend their leisure time in more improving ways. Anybody who has had the misfortune to visit countries where people are encouraged to spend their leisure time in more improving ways knows how dismal the consequences are and what fearful places Soviet resorts, for example, have become where this kind of innocent—I do not think that "flutter" is the right word—way of losing one's pennies is regarded as bad.
I hope that these happy, cheerful and extremely noisy places will and are enabled to continue to operate over a longer period during the year. For that reason, I hope that the Government, while not necessarily accepting the amendments in the exact form in which they are cast, will feel able to go a little further than they have gone in the new clause to enable seaside operators, who are so different in character from those who operate in the big cities, to go on working for most of the year.

Mr. W. R. Rees-Davies: There are two important aspects to be considered. First, the penny machine has for many years been regarded by the Treasury as a separate object. It has always been regarded as being outside the element of gambling and, as such, something which could be assisted.
Today the penny machine, in virtue and in truth, is really the twopenny machine. Therefore, it is only right that

what used to be the old penny machine should be regarded as the twopenny machine of today.
The amendments would carry that proposal into effect quite well. I think that is wholly reasonable. The amendments should be attractive to the Treasury because, instead of getting £7·50 for the penny machine, it will make up its revenue with a £15 fee. Therefore, whilst there is an advantageous yield to the amusement trade operator and no disadvantage to the player who is content to pay twopence on these machines, there is a considerably higher yield to the revenue. This is one area where the revenue can get an additional yield in a harmless way. Seldom do we find proposals which are attractive to the Treasury, on the one hand, and also to the trade, on the other.
I suggest that this proposal could be of some benefit to amusement trade operators, particularly in seaside resorts. They are having a difficult time now. My postbag has been full of letters from many operators in the Isle of Thanet, which is one of the principal areas concerned. Indeed, not only in the Isle of Thanet but in other places there are many people who lead this particular industry in the production of machines not only for export, but for the home market.
Here is a case where the Treasury has nothing to lose and everything to gain by making the concession. I do not know whether it can make it here and now, today, but it is one to which I submit it should give very careful consideration and introduce it shortly in an acceptable manner.
With regard to the VAT, on which a concession has been made, the whole of the money which has to be paid out from the machines is paid to the persons concerned by way of prizes, and therefore there is nothing to be gained by the operator in respect of those concessions. The money goes into the machine and he is bound by a very limited return on it.
In relation to other matters on which operators have to pay the tax, their turnover has not increased at all in the current year, and the only way in which they can get an additional income is by raising the tariff rate from 1p to 2p.


There is no other way in which they can get any other accretion of income to meet their ever-rising overheads. I hope that in those circumstances this matter can be dealt with satisfactorily.
I am sorry, Mr. Deputy Speaker, that there are other aspects of gaming and licensing that we are not able to deal with on Report, but I hope that when considering these matters Her Majesty's Government will recognise that there are other aspects of Clauses Nos. 2 and 4 on which at least satisfactory representations need to be made, whether we are dealing with gaming machine licences or with casinos, which have not been fully canvassed in the course of the Standing Committee proceedings.

Mr. Sheldon: The amendments are basically similar. In particular, Amendment No. 5 and part of Amendment No. 6 seek to extend the holiday season licence, which is at present concerned with the 1p machines, to premises providing 2p machines. Amendment No. 5 suggests that the duty in the case of a holiday season licence should be £10 for each machine, and Amendment No. 6 proposes that the duty should be £7·50 for a 1p machine and £15 for a 2p machine.
I should like to deal at the same time with Amendment No. 7 and the remaining part of Amendment No. 6, which would extend the validity of the holiday season licence, which at present covers the period 1st March to 31st October and is spread over most of what would be regarded as a normal holiday season, which is the point made by the hon. Member for Flint, West (Sir A. Meyer). Amendment No. 7 and part of Amendment No. 6 would extend the licence to the 12 months period from 1st March to the end of February, but in the period 1st November to the end of February it would authorise the use of machines only on Saturdays, Sundays and statutory holidays. The part of the amendment which proposes extending the validity of the holiday season licence to Saturdays, Sundays and statutory holidays in the off season would pose very real problems of control.
Amendment No. 8 seeks to make consequential amendments to the Bill. There are one or two things wrong with the drafting of Amendments Nos. 5 and 7. We have not concerned ourselves with

these, accepting that the intention is quite clear, and I am speaking to that. The cost of the proposals would amount to about £300,000 in a full year.
The hon. Member for Weston-super-Mare (Mr. Wiggin) pointed out that in his opinion the profitability of these machines after VAT, gaming machine licence duty and overheads have been paid, will not be very large. This may be so. I hope that, following the passage of this legislation, we shall have more information, and, if these figures are similar to those which the hon. Gentleman has suggested, obviously we shall want to look at this matter very closely.
5.15 p.m.
The hon. Gentleman may not be aware that in very many aspects of Customs and Excise and Revenue work we are able to make estimates—all Governments would consider this to be quite essential—as to the impact of the taxes levied upon the profitability or otherwise of the concern which is taxed. This is desirable and is usually achievable. In this case it is much harder to assess. The consequence of this legislation will mean that it is easier to assess. Thus on some future occasion, when we may be debating this point, hon. Members on both sides of the House will be able to speak with greater knowledge, because there will be certain information available to them which is not available now. This can lead only to a more informed decision, which I am sure is something the House would wish.
Concerning the level of the coin suitable for a holiday season licence, the proposal is made that it should be increased to 2p. The 1p machine has been selected in the past as being a suitable one for a holiday season licence, but it is suggested that, because of inflation, and the way it impinges on profitability, this needs now to be changed to 2p. The hon. Member for Weston-super-Mare made this point as also did the hon. and learned Member for Thanet, West (Mr. Rees-Davies).
This will have to be looked at very carefully. I have gone into it myself, and clearly there comes a stage where, assuming that other things remain equal, one would need to move in this direction. I have ensured that the Customs and Excise authorities will be putting this under review as the operation of the value added tax on gaming machines gets under way


and we are able to see the effect of VAT in this field more clearly in many respects than one saw the effect of the gaming machine duties. Following upon that, we shall be able perhaps to come to a decision based on the light of experience and come back to the House at some future date.

Mr. Wiggin: I found the answer given by the Financial Secretary to the Treasury to be far from convincing. The quite reasonable plea was that the licence should be extended to Saturdays, Sundays and public holidays. This would give considerable pleasure to visitors to seaside resorts in the winter months when, despite the philosophy of the Treasury, there are a considerable number of visitors.
The Minister said that it would not be possible because it would be too difficult to control. This I fail totally to understand. Here is an industry with a few centres in which the arcades are concentrated and where one Customs and Excise official could check very quickly, without the slightest difficulty, on the activities in a whole town. Indeed, the officials are quite prepared to check far more miniscule matters when the Treasury thinks it suitable to do so.
On the question of the effect of taxation changes upon this industry, one comes back to the ludicrous argument that the Government will wait and see. When the animal is dead, they will agree that it had a disease.
Only today I have been talking to people in the boat industry, which is quietly collapsing. When the Government find that it has been totally extinguished they will no doubt say that they have made a mistake and want to put it right. Here the Government say that they cannot believe the information until everybody has been bankrupted or put into severe financial difficulties. The purpose of the exchange of information from associations and others during the debate on this Bill should be to enable hon. Members to put up logical and responsible arguments. I do not believe that this association or any of the others would dare pass on this information to hon. Members on either side of the House if they did not genuinely believe it.
I accept the Treasury argument that of course they will make out the best case that they can and that they may even exaggerate the figures and disagree about them. But this House cannot get away from the fact that, when VAT is passed on to the end product, even the most elementary mathematician can see that it has a grossly disproportionate effect. This was a consumer tax levied upon the user of the service. Because of the difficulties of these coin machines, VAT does not fit very well into this industry.
As for our request with regard to 2p machines, I had not thought that it needed the mandarins of the Treasury to prove that over a long period of time people have found that the 2p coin is now equivalent in many people's minds and, sadly, in reality to a 1p coin when the legislation was first introduced. In fact, it is the coin which people have in their pockets.
I am sorry that this minor matter has not received a very favourable response from the Treasury. However, we glean a grain of hope from feeling that perhaps the Treasury will continue to listen to the association's view during the coming months and that it may even take action during the season if it proves necessary, so that whatever chance there is of recovering some of this swingeing imposition can be taken advantage of.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 7

EXEMPTION FOR REGISTERED FRIENDLY SOCIETIES

'(1) In section 332 of the Taxes Act (exemption of income and gains of registered friendly societies other than profits arising from life or endowment business consisting of the assurance of gross sums exceeding £500 or of the granting of annuities of annual amounts exceeding £104), after subsection (3) there shall be added the following subsections—
(4) A registered friendly society is within this subsection if its rules make no provision for it to carry on life or endowment business consisting of the assurance of gross sums exceeding £1,000 or of the granting of annuities of annual amounts exceeding £208.

(5) In the case of a registered friendly society within subsection (4) above—

(a) subsections (2) and (3) above shall have effect with the substitution of references to £1,000 and £208 respectively for the references to £500 and £104; and


(b) references in this Chapter to tax exempt life or endowment business shall be construed accordingly.

(6) Where at any time a registered friendly society within subsection (4) above amends its rules so as to cease to be within that subsection, any part of its life or endowment business consisting of business which—

(a) relates to contracts made before that time; and
(b) immediately before that time was tax exempt life or endowment business,
shall thereafter continue to be tax exempt life or endowment business for the purposes of this Chapter.

(7) Where at any time a registered friendly society not within subsection (4) above amends its rules so as to bring itself within that subsection, any part of its life or endowment business consisting of business which—

(a) relates to contracts made before that time; and
(b) immediately before that time was not tax exempt life or endowment business,
shall thereafter continue not to be tax exempt life or endowment business for the purposes of this Chapter.

(8) Where at any time a registered friendly society not within subsection (4) above acquires by way of transfer of engagements or amalgamation from another registered friendly society any life or endowment business consisting of business which—

(a) relates to contracts made before that time; and
(b) immediately before that time was tax exempt life or endowment business,
that business shall thereafter continue to be tax exempt life or endowment business for the purposes of this Chapter.

(9) Where at any time a registered friendly society within subsection (4) above acquires by way of transfer of engagements or amalgamation from another registered friendly society any life or endowment business consisting of business which—

(a) relates to contracts made before that time; and
(b) immediately before that time was not tax exempt life or endowment business,
that business shall thereafter continue not to be tax exempt life or endowment business for the purposes of this Chapter."

(2) In section 337(3) of the Taxes Act, in the definition of "tax exempt life or endowment business"—

(a) after the word 'has' there shall be inserted the words ", subject to section 332(6) to (9) above,";
(b) after the word 'means' there shall be inserted the words ", subject as afore-said,";
and
(c) at the end there shall be added the words '(read, where appropriate, with subsection (5) of that section)'.

(3) The preceding provisions of this section shall have effect as regards any year of account of a registered friendly society or branch ending after the passing of this Act (including the whole of any such year of account that ends with 31st December 1975).

(4) The Friendly Societies Act 1974 and the Friendly Societies Act (Northern Ireland) 1970 shall have effect subject to the amendments specified in Schedule (Amendments of enactments relating to friendly societies) to this Act, being amendments arising out of the preceding provisions of this section.'.—[Mr. Joel Barnett.]

Brought up, and read the First time.

The Chief Secretary to the Treasury (Mr. Joel Barnett): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Oscar Murton): With this, it will be convenient to discuss Government Amendment No. 103.

Mr. Barnett: This clause, and the amendment fulfil a Government undertaking in Committee to extend to the great majority of registered friendly societies the same increases in the limits below which their life or endowment business will be exempt from tax—that is from £500 to £1,000 in respect of gross sums assured and from £104 per annum to £208 per annum in respect of annuities—as is provided in respect of trade union provident benefits.
Historically, the "tax exempt" limits for the trade unions and the friendly societies have always so far marched in step. However, the reasons for according equal treatment are now less compelling than they have ever been before, and it would not be unreasonable to distinguish between them.
For friendly societies, what is involved is tax exemption on part or all of their life or endowment business, a business which is not closely paralleled by the trade unions but in which the friendly societies to some extent compete at a tax advantage with the industrial life assurance companies.
For the trade unions, the tax exemption is an all or nothing affair since it runs only if the trade union is precluded from assuring sums above the stipulated limits. The friendly societies, by contrast, are entitled to tax exemption in respect of their business below the tax exempt limits but may also transact business above those limits, and within certain


higher limits, provided they bear tax upon it.
The tax exempt limits for friendly societies were first introduced when most members of friendly societies had incomes below the taxable level. This state of affairs no longer obtains, and the logical basis for the exemption has disappeared. The fact that trade union members also are now mostly liable to tax is less significant, bearing in mind that the provident benefit of a trade union member is merely ancillary to the other benefits he expects from payment of his union subscription, whereas the benefit from the life of endowment assurance taken out by a friendly society member is the sole purpose of the premium he pays.
Nevertheless, the Government have come to the conclusion that it would be reasonable to accede in large measure to the claim on behalf of the friendly societies that they should have the benefit of the extension of the tax exempt limits proposed for trade unions. The great majority of friendly societies are small in character: over 5,000 out of a total of under 6,000 are in fact local branches of one or other of the large "Orders". Only 41 larger societies have transacted life or endowment business on the taxable basis that I have explained. It is these societies which can be considered to come most closely into competition with the life assurance companies. But, for the reasons that I have given, we feel that it is reasonable to extend the concession which we have granted to the trade unions to the smaller societies, and I hope that this will be acceptable to the House.

Mr. Ridley: We must be grateful for small mercies, and I acknowledge that what the Chief Secretary has done meets a point which I raised in Committee. I am glad that he has seen fit to do it. However, there are some questions which should be asked.
The Chief Secretary made the astonishing statement just now that any logical reason for these concessions had disappeared because wages are now well into the taxable limit, and that one was bound to ask why there should be a tax exemption for an insurance benefit for trade unions or, for that matter, for friendly societies when others had to go through the other tax treatment afforded

to life assurance policies taken out with insurance companies.
I can tell the right hon. Gentleman the reason. The reason why he put Clause 50 into the Bill was that the trade unions put it into their economic policy document under the heading "Tax Reform". Anything which is asked for by the TUC is immediately and automatically granted by this Government. But apparently they they did not read properly what the TUC said. It said that is should be both trade union benefits and friendly society benefits. The Government put in a provision only about trade union benefits because, in a way, that was almost too much. Having been put in, the Chief Secretary asks why it is there at all. It would have been better if he had studied this whole matter, rather than simply taking what the TUC said, and then worked out what help the taxpayer should give to people taking out insurance policies of all kinds, so bringing more roughly into line the treatment of those who take out policies from trade unions, friendly societies and insurance companies, so that the treatment was more equal.
There is something paternalistic about this advantage and, although I welcome it—I welcome anything which encourages people to save and to make provision for their old age—I wonder why the limits are drawn as they are and why the advantage is not available to all.
If the business is taxable, the limits are the old ones of £104 and £500. Why is this the case? Simply because the business is taxable, why should the limits be kept so low? I think that it is only right to increase greatly the limits on taxable business. The effect of inflation in reducing all the limits, both taxable and nontaxable, in terms of their real value is such as to whittle away even further the value of these exemptions.
This whole matter is in something of a mess. Now that every proposal coming from the TUC has been accepted, may we consider the effects? Can the Chief Secretary say that he will have discussions with all those concerned, that he will take a fresh look at this whole area, and that he will see whether all savings in insurance can be put on to an equal basis for all citizens without the discrimination which seems to exist in the present state of affairs?
Having said that, however, I repeat that I must be grateful for this small concession.

5.30 p.m.

Mr. Graham Page: I suppose that I, too, should preface my remarks by saying that I am thankful for small mercies or that I shall not look a gift horse in the mouth. However, I fail to see the distinction which the Chief Secretary drew between the trade unions in this type of business and the friendly societies. As the right hon. Gentleman said, historically the trade unions and the friendly societies have marched hand in hand with the limits set on this kind of business—the limits under which they will be exempt from tax on income from life or endowment assurance up to £500 and from annuities up to £104 per annum.
Since 1908 they have marched hand in hand and at that time the figures were respectively £300 and £52. The idea then was that a manual worker should insure for about three years' earnings. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) asked why, even at present, we are keeping the limits down to the new figures of £1,000 and £208. Why the figure was ever kept at £500 I do not know, but certainly £1,000 in 1975 is not equivalent to £300 in 1908.
The Chief Secretary seems to make a distinction. It is true that we were all rather astonished to read Clause 48 of the Bill as it was which made this distinction between the trade unions and friendly societies when, since 1908, they have marched hand in hand on these figures. My hon. Friend the Member for Cirencester and Tewkesbury raised this point in Committee. We know that discussions have taken place between the friendly societies' liaison committee and Treasury Ministers.
This rather long and niggly amendment has been tabled today. I say "niggly" because I wonder why all the business at these figures should be exempt, whether done by trade unions or friendly societies. New Clause 7 states that
A registered friendly society is within this subsection if its rules make no provision for it to carry on life or endowment business consisting of the assurance of gross sums exceeding £1,000 or of the granting of annuities of annual amounts exceeding £208

Under this amendment about 5,000 of the 5,913 friendly societies registered at the end of 1973—that is, the smaller societies—will get the benefit. Why not grant the benefit to those societies which do this business, even though their rules may allow them to do business at a higher figure? I cannot understand the justification for saying that small societies should get the benefit of this amendment but large societies which are doing small business should not. It seems wholly illogical. I should like to cite as an example one particular society, namely, the Post Office Insurance Society, which works closely with the Union of Post Office Workers.
As my hon. Friend the Member for Cirencester and Tewkesbury said, there is no quarrel between the trade unions and the friendly societies in this respect and there is no quarrel between the liaison committee of the friendly societies and the Trades Union Congress. The Trades Union Congress expects the friendly societies to receive exactly the same treatment as the trade unions. In the example I have given, because the Post Office Insurance Society is a large society and even for this small business will be unable to take advantage of the amendment, the members of that society will be able to get advantageous terms—tax exemption—from the trade unions. These are two bodies which work closely together.
The trade unions do not ask for any discrimination in this matter and yet it is a fact that this amendment will apply to members of the Post Office Insurance Society if they move their business to the trade unions. The position has not been thought out.
I suppose that we should not look a gift horse in the mouth and I am quite prepared to accept that the friendly societies, through their liaison committee, have—after discussion with the Treasury Ministers—accepted this amendment. But they accepted it in the spirit of "here is something we have gained out of this Finance Bill. Perhaps we shall gain something more out of the next one".
I am sure that when the Chief Secretary replies he will thank me for not seeking to put myself on the Committee and he will regret that I am back again to face him.

Mr. Joel Barnett: I am always delighted to have the thanks of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) for any concession, no matter how small, that I move on Report. I agree with the hon. Gentleman that the situation is in a bit of a mess in that if one looks at it logically there is no ground for giving any relief at all to the friendly societies. I believe that that is the point the hon. Gentleman was making. In that sense he is right.
However, the main point made by the hon. Member for Cirencester and Tewkesbury and by the right hon. Member for Crosby (Mr. Page) concerned the comparability between the trade unions and the friendly societies. I tried to showbriefly—that there is a difference between the provident benefit funds of a trade union and a friendly society. The societies are conducting taxable business, whereas a trade union can have the benefit of the tax exemption only if it is precluded, by its rules or by an Act of Parliament, from assuring benefit above the stipulated tax exempt limits. Therefore, there is quite a difference between the two.
In the case of friendly societies the benefit is the sole purpose for which a premium is paid whereas, as I indicated at the outset, in the case of a provident benefit fund this is ancillary to the main purposes of the subscription paid by a member of a trade union.
I do not blame the hon. Member for Cirencester and Tewkesbury for having a little fun in relation to the request by the TUC. That request, however, stemmed from the Flixborough disaster, as a result of which the trade unions concerned would have been unable to pay benefit of the size they wished to the widows involved. I should have thought that this would be recognised—I am glad to see the right hon. Member for Crosby nodding—as a good reason for allowing the request to increase the size of benefit to be paid.
Let us remember what trade union provident benefit funds are paid for. This is often misunderstood, although I am sure not by the hon. Member for Cirencester and Tewkesbury.

Mr. Ridley: If the Chief Secretary had been killed at Flixborough, on that unfortunate day his widow would have

been compensated by payment from an insurance company which had paid the full rate of tax. It is rather inequitable that one group of people can—however sad and tragic the circumstances—obtain a tax relief which is not available to others.

Mr. Barnett: In fairness, the two things are different. We are talking about a man who has paid a subscription to his trade union, perhaps for many years—certainly in this case all his life—and the union wishes to pay a benefit to that man's widow. That, indeed, is one of the major purposes of the provident benefit fund. Therefore, the clause is not unreasonable—indeed, in Committee hon. Members accepted the clause extending the size of benefit that could be made.
The hon. Member for Cirencester and Tewkesbury asked whether I would have discussion on the matter. I had discussions. As it happens, I studied the matter quite closely before going into the question of both the trade union benefit, and increasing that relief, and this clause in relation to friendly societies. I met a deputation from the friendly societies. Arising out of that deputation and the discussions I had with them, I recognised the case for doing what has been done in the new clause, the schedule and the amendments.
I think that both hon. Gentlemen wanted me to go further and to exempt the lot. But that would be to do too much. I think that this is a very reasonable new clause and schedule which will be of benefit to a large number of smaller friendly societies and their members. I ask the House to accept it.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 6

CAPITAL GAINS ON CERTAIN STOCK DIVIDENDS

'(1) Where a company issues any share capital to which section 33 of this Act applies in respect of shares in the company held by a person as trustee, and another person is at the time of the issue absolutely entitled thereto as against the trustee or would be so entitled but for being an infant or other person under disability (or two or more other persons are or would be jointly so entitled thereto), then—

(a) notwithstanding sub-paragraph (1)(a)(i) of paragraph 4 of Schedule 7 to the Finance


Act 1965 (reorganisation of share capital etc.), the case shall not constitute a reorganisation of the company's share capital for the purposes of that paragraph; and
(b) notwithstanding section 22(4)(a) of that Act, the person who is or would be so entitled to the share capital (or each of the persons who are or would be jointly so entitled thereto) shall be treated for the purposes of paragraph 4(1)(a) of Schedule 6 to the Finance Act 1965 (expenditure allowable in the computation of gains under that Schedule) as having acquired that share capital, or his interest in it, for a consideration equal to the appropriate amount in cash within the meaning of paragraph 1 of Schedule S to this Act.

(2) This section shall be deemed to have come into force on 6th April 1975.'.—[Mr. Joel Barnett.]

Brought up, and read the First time.

Mr. Joel Barnett: I beg to move, That the clause be read a Second time.
This new clause deals with the difficulty arising where stock dividends are allotted to trustees in a case where a beneficiary is absolutely entitled to them. The clause provides, firstly, that the new shares shall not form part of the trustees' holding and, secondly, that the cost to the beneficiary of the new shares shall be the amount provided in paragraph 1 of Schedule 8 to the Bill, which determines the amount to be assessed to income tax, under Clause 33 of the Bill, on the recipient of the new shares.
We have received representations—this aspect was discussed in Committee—suggesting that in a case in which a beneficiary was absolutely entitled to the income of a trust, Clause 31 as it then was, now Clause 33, could impose a form of double taxation where stock dividends were allotted to the trustees.
This, it was thought, could arise in the following way. The Revenue took the view that stock dividends allotted to trustees became settled property of the trust. A charge to capital gains tax therefore arose on the trustees under Section 25(3) of the Finance Act 1965, which provides that there is a deemed disposal by trustees where a beneficiary becomes absolutely entitled to income as against trustees, on the allotment of the stock dividends. Clause 33 of the Bill contains provisions for charging stock dividends, measured in a certain way, to income tax. This charge will fall on the beneficiary where he is absolutely entitled to the stock dividends.
As has been indicated to us, the stock dividends are then being charged to tax twice, firstly to capital gains tax in the hands of the trustee, and secondly to income tax in the hands of the beneficiary. We are now advised that where the beneficiary is absolutely entitled to the income of a trust he is also absolutely entitled, ab initio, to stock dividends issued in lieu of cash dividends. The stock dividends do not, therefore, become settled property, and no charge to capital gains tax on the trustees therefore arises, as Section 22(5) of the Finance Act 1965 applies.
It being accepted that there is a division of ownership as between the shares held in trust and the new shares allotted in respect of them, the existing capital gains tax rules do not provide a satisfactory measure of cost for the old and the new shares respectively.
I hope that is reasonably clear to the House. I see the right hon. Member for Crosby (Mr. Page) following my remarks avidly.

Mr. Graham Page: I want to intervene at this point only to say that I congratulate the Chief Secretary on being so modest and using Latin to hide the normal legal definition of these people as bare trustees.

Mr. John Nott (St. Ives): Will the Chief Secretary remind the House of what Section 22 of the 1965 Act says? I did not quite catch what he said.

Mr. Barnett: Section 22(5) of the Finance Act 1965 provides that, where assets are held by a person as trustee for another person absolutely entitled as against the trustee, the acts of the trustee shall be treated as if they were the acts of the beneficiary.
I know that it is absolutely clear to the right hon. Member for Crosby, because he is an expert on bare trustees and not-so-bare trustees. I hope that that explains the matter to the hon. Member for St. Ives (Mr. Nott).

Mr. Nott: It could not be clearer.

Mr. Barnett: Good. I should be happy to explain any further parts of the new clause which are not clear to hon. Members, but I am sure that they will recognise the need for the clause.

5.45 p.m.

Mr. David Howell: I am glad to hear that this matter is very clear to my hon. Friend the Member for St. Ives (Mr. Nott), and indeed, no doubt to everyone in the House this afternoon. Perhaps I may have one shot at stating what, as I understand it, in slightly less technical language, the clause does. Then, if the Chief Secretary nods, I shall be happy and I shall be able to join my hon. Friend in having it absolutely clear.
Am I right in assuming that where trustees are acting for a child or a minor, or whoever it is, as beneficiary, all that the clause does is to relieve them for capital gains purposes from the capital gains tax to which they might be liable in addition to the income tax to which they will be liable under Clause 33, as approved in Committee? Is that the purpose of it? Is it that kind of minor relief under a general provision about which we were not very happy? Have I got that right, and is the Chief Secretary nodding?

Mr. Joel Barnett: The hon. Gentleman is right and the Chief Secretary is nodding.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 1

TRAVELLING EXPENSES OF LOCAL AUTHORITY EMPLOYEES DISPLACED BY LOCAL GOVERNMENT REORGANISATION

'Any payment to an employee of a local authority to meet the cost of his travel between his main place of residence and his main place of work shall not be regarded as income for the purposes of taxation up to 5th April 1978, provided that the employee was an employee on 31st March 1974 of another local authority but was unable, owing to local government reorganisation, to continue in employment at the same main place of work, and his present main place of work is the nearest for practical purposes to his old main place of work.'—[Dr. Edmund Marshall.]

Brought up, and read the First time.

Dr. Edmund Marshall: I beg to move, That the clause be read a Second time.
The purpose of this new clause is simply to remove an injustice which I

shall describe, arising from local government reorganisation. Hon. Members will recall that reorganisation took place in England and Wales in April 1974, and in Scotland in May this year. The injustice to which I refer continues to be suffered by many local authority employees. These are the employees who, as a result of local government reorganisation, had to terminate their employment with the former authorities and, for one reason or another, had to seek new positions—not only new positions with new authorities but also new positions which involved working at new places, sometimes at quite a considerable distance from their previous office.
I recall when local government reorganisation was considered in the House. Like the Minister of State, whom I see in the Chamber for the first time on an occasion of this nature on the Treasury bench and whom I congratulate on his preferment, I served on the Standing Committee which considered the Local Government Bill in 1971–72 and on which the Minister was the right hon. Member for Crosby (Mr. Page). In those proceedings it was the general intention that existing local government employees should suffer in no way financially purely as a result of reorganisation. I think I am right in saying that that general principle was written into the Local Government Bill. It may be useful if I quote to the House at a little length from Section 255(3) of the Local Government Act 1972, which enables provision to be made
… with respect to any person who is transferred by or under the order or regulations from the employment of one authority to that of another so as to secure that—
(a) so long as he continues in the employment of that other authority by virtue of the transfer and until he is served with a statement in writing referring to the order or regulations and specifying new terms and conditions of employment, he enjoys terms and conditions of employment not less favourable than those which he enjoyed immediately before the date of transfer;
Then it goes on to talk about the new terms and conditions of employment that might be specified and ends by requiring that such new terms
are not less favourable than those which he enjoyed immediately before the date of transfer.
Unfortunately, that general principle has not worked out fully in practice for many local government employees who were


forced by reorganisation to find new jobs, requiring them to transfer some distance from their previous main places of work. That kind of situation arose in several ways. I shall give three examples.
First, there were many places in which old local authorities ceased to exist. One of the purposes of reorganisation was greatly to reduce the number of local authorities. This has meant that, particularly in rural areas, there are now no local authority offices within the area of the old local authorities. Because of this, many employees of the old authority are forced in the nature of things to travel some distance to their new offices.
Secondly, the redistribution of local government functions between the two spheres of the new local government structure has sometimes led to a redundancy of the previous offices of some local authorities. For example, where an old county borough was merged into the new county, and where the area of that county borough simply became a district under reorganisation, many of the major functions previously administered in the county borough, such as education, highways, social services and sometimes the police, are no longer centrally administered in the former county borough. Many of the people involved in that work have had to move to other county headquarters.
Similarly, some former county functions have been reassigned to district level in the new metropolitan counties, so that again we find that the old office accommodation, after reorganisation, has been in the wrong place for the administration of the corresponding services. People who wanted to stay in the same kind of work in local government have had by force of circumstances to find employment some distance away.
Thirdly, one effect of local government reorganisation was in many parts of the country to introduce completely new boundaries, with a pattern of administration completely changed from what had gone before, the old offices having by reason of geography to close down. There was a typical example in my constituency, with regard to education administration. Under the old West Riding County Council, as the local education authority, there was in the town of Goole a divisional education office with a staff of 17 administering the schools in the borough of

Goole, Goole rural district and Thorne rural district. Under reorganisation. Goole borough and rural district went into the new county of Humberside, while Thorne rural district became part of the Doncaster Metropolitan District.
Because of that change of boundaries, it is no longer possible to have the office of an educational division at Goole. The new Humberside education authority has decided to administer schools in Goole from offices in Scunthorpe. Meanwhile, the schools in the Thorne area have come to be administered from education offices in Doncaster.
In those circumstances, the staff of the old education office in Goole were all displaced by reorganisation. I believe that nearly all of them have found suitable new posts in the new local authorities, but those who wanted particularly to stay in education administration are no longer able to carry on that work in the town of Goole, and a group of them have transferred to the education offices in Doncaster. During the past year, since reorganisation, they have commuted daily about 15 miles each way to and from their new place of employment.
Those are examples of problems which could have arisen in all parts of the country as a result of local government reorganisation. I believe that in all these cases the new employing authorities are refunding such employees any extra travel expenses that they incur by having to make the additional journey. Indeed, I understand that there is a general agreement among local authorities that such travelling expenses should be paid for four years after reorganisation. That period will allow for the fact that in many cases it was not convenient for employees to move house at the same time as reorganisation, because of family ties or because they were still young single people living at home with their parents. In many of those cases, they had taken up their work in the old office simply because it happened to be near their homes.
But, in spite of the generosity of local authorities in refunding these extra travelling expenses necessitated by local government reorganisation, the Inland Revenue has insisted on treating the refund payments as taxable income. Consequently, these local authority employees are out of pocket because of the extra


travelling that they have to undertake as a result of local government reorganisation. They also have to spend more time during their working day going to and from work. It seems to me that the whole spirit of Section 255(3) of the Local Government Act 1972 has been overlooked in this case, and a genuine feeling of injustice has arisen.
I appreciate that the Inland Revenue is sticking to its general rules on the payment of travelling expenses. I do not intend to discuss those rules now. I have deliberately restricted the clause to a particular case. But it is clear to me that the injustice that I have described cannot be removed unless there is exceptional legislative dispensation for those displaced local authority employees. The clause seeks to do exactly that for a period of four years after reorganisation, thereby covering the period during which travelling expenses are to be refunded by the new authorities, and giving time for employees to adjust themselves domestically without too much inconvenience.
I believe that the case for these local authority employees is unique among all the claims for non-taxation of travelling expenses, because their problem has been caused directly by the Act of Parliament which led to reorganisation. Parliament created this injustice and it is time for Parliament to put the matter right.

6.0 p.m.

Mr. Nigel Lawson: I shall not detain the House as long as did the hon. Member for Goole (Dr. Marshall). I do not know what my hon. Friends or the Government Ministers thought of his speech, but I did not think the hon. Member for Goole made his case. He says these local authority employees, who I am quite sure are extremely worthy people and about whom he clearly has very great knowledge, have suffered disruption involving extra expense and that, because this was a result of local government reorganisation brought about by an Act of Parliament, this makes them a unique case. I do not see that. There are all sorts of reorganisations in private industry which involve people in longer journeys, but they get no tax-free income as a result.
There may be an Act of Parliament setting up the National Enterprise Board and further Acts and orders following that may reorganise certain parts of industry with the result that some people have to move. Indeed, as my hon. Friend the Member for St. Ives (Mr. Nott) reminds me, the Chairman of the British Steel Corporation, Sir Monty Finniston, a man revered on both sides of this House, may have to move his office and suffer dislocation and additional expense.
Are we to say that local authority employees in one kind of reorganisation should have tax-free perks which no one else who suffers from a reorganisation receives? That seems a strange principle and the case for it has not been made.
I am surprised that the hon. Member for Goole did not recall that, not long ago, the Secretary of State for the Environment, addressing local authorities in general, said: "The party is over". Now the hon. Gentleman is asking for more presents. I am sure that the Chief Secretary to the Treasury will confirm that the party is over. I realise that in the Chief Secretary's discussions with his colleagues from spending Ministries, he has very great difficulty in convincing them that the party is over. We all know that he is doing his best. We welcome the efforts that he is making and wish him more success than he has had so far.
Many of us got the impression that the reorganisation of local government was something of a bonanza for local authority employees. They got grander titles, grander jobs and grander salaries. Can the hon. Member for Goole assure us that none of these people he is talking about has not already been more than recompensed by a larger salary for the little extra travel and expense? I suspect that many people would feel that, at a time of considerable hardship for this country, when standards of living are to fall, local Government employees should not be protected and should not be given tax-free benefits on top of any rises they may already have had.
The people who have suffered the most dislocation from reorganisation are those in the private consultancy firms who used to assist local authorities when they were responsible for water and sewerage services. Now that these responsibilities


have been transferred to regional authorities, the consultants are no longer being employed. The job is being done entirely by local government officials, and I understand that NALGO insisted that only its members should do this job. There has been very much greater dislocation and disruption for this small segment of the private sector, but no provision is to be made for them. I am not claiming that it should be. I am merely pointing out the inconsistencies in the argument.
Has the hon. Member for Goole considered whether his recommendation is consistent with the spirit of the letter of the Remuneration, Charges and Grants Bill, published today, which in an extraordinarily arbitrary way seeks to implement some of the provisions of the White Paper "Attack on Inflation". I hold no brief for this shoddy Bill, but I assume that the hon. Member will be supporting it vigorously.
The hon. Gentleman has not chosen the best of days to put forward his special plea. I am not referring to Members' salaries—nothing could be further from our thoughts—but on a day when certain local government employees, including Mr. Swaffield of the GLC and others, have had very big increases, it was rather tactless of the hon. Member to put forward a new clause of this kind.

Mr. William Wilson: As a local government representative, I was glad to put my name to the new clause. I did so because I feel that a number of individuals affected by the reorganisation of local government have suffered an injustice which the clause seeks to remedy. We know that for a long time the cost of travelling to work has not been an expense for which one can claim an income tax allowance, but despite what the hon. Member for Blaby (Mr. Lawson) has just said I believe that local government representatives are in a special class. Their difficulties and travelling expenses have arisen because of a decision of this House and we should see that no exceptional burden is placed upon them.
I do not accept the argument that we should not help them because others might be similarly entitled to claim assistance. The remedy is not to bar local government employees from the benefit

but to remove the disability suffered by others.
I am sorry that the hon. Member for Blaby has left the Chamber. When he talks about the party being over, he should recognise that for the people covered by the new clause the party never started. When these individuals draw their travelling expenses they are paid only the actual cost of the travelling, and there is no profit to be made from it. This is not a question of travelling expenses plus income tax. The Treasury Bench should accept the clause. There is no reason why individuals who are affected in this way by a decision of this House should be out of pocket.

Mr. Graham Page: I support the hon. Member for Goole (Dr. Marshall). I could not disagree more with my hon. Friend the Member for Blaby (Mr. Lawson) and the fallacious sledgehammer that he swung at the hon. Member for Goole and his very modest clause. I am deeply concerned on this issue from a constituency point of view and from the fact that I was the Minister in charge of the Bill to which the hon. Member referred.
I shall spell out my constituency example first because I have been in correspondence with Ministers about it. The new borough within which my constituency lies consists of three former boroughs, an urban district council and a town which consists of a good many parishes. When the local Government functions of all these various authorities were combined, their administration was split between all the convenient buildings and a number of local government servants had their jobs moved some distance away. The metropolitan borough of Sefton is about 10 miles long and occupies a strip along the Mersey coast. Employees whose administration moved from one end of that borough to the other now work a considerable distance away from where they were originally working. The borough has been discharging the extra expense of travel to which these employees have been put.
This is a question purely and simply of returning to those employees extra disbursements which arose because their place of work was changed. Their work is the same. That is where my hon.


Friend the Member for Blaby, whom I seem to have frightened out of the Chamber, was so wrong. There is no question of new appointments, and the talk about a bonanza for the ordinary middle-level local government employee is a lot of nonsense. There is no question of a change of appointment or engagement. These people are doing the same work as they were doing before but they are required, by reason of local government reorganisation, to do it somewhere else. People in my constituency are suffering because they have to pay tax on these disbursements. The money is treated as part of their remuneration instead of being treated, as was intended, as payment for extra expense caused by the movement of the administration of their work.
I recollect, as a Minister, both in Standing Committee and at the Dispatch Box, giving assurances that local government servants would not suffer from the reorganisation, and the hon. Member for Goole has read out the clause which would give effect to that assurance. It is utterly disgraceful that on a matter which does not involve party politics an assurance given by a previous Minister should be overridden by the present Government.
I have received great sympathy from the Ministers in the Department of the Environment. Those who advise them know perfectly well what I intended by the Act. I gave assurances to the House that I intended that local government servants should not suffer by the reorganisation. After the Act became law and was being administered by the new Government, the Treasury denied that any such assurance had been given. I cannot put my finger on the precise column in Hansard, but I am sure that hon. Members who took part in proceedings on the Bill will confirm that it was certainly the understanding of all of us that the assurance had been given for the benefit of local government servants.
I am quite sure that if the Treasury Ministers asked NALGO about it, it would confirm what I have said. I know that NALGO has been in conference with Treasury officials on this very subject. I beg the Government to take this matter seriously, not in the jovial manner in which my hon. Friend the

Member for Blaby put it before the House. There is no question of a bonanza. This is a very small matter of finance but it is important in respect of the undertaking given to local government servants. Failure to observe it is letting down a former Minister on a completely non-party political matter. Assurances given by one Government on non-party political matters should be honoured by succeeding Governments.

6.15 p.m.

Mr. John Cope: To demonstrate that this is not a party political matter, I shall oppose my right hon. Friend the Member for Crosby (Mr. Page). The hon. Member for Coventry, South-East (Mr. Wilson) may have put his name to the wrong new clause. He said that if other people were placed in a similar situation, the same sort of arrangement should be extended to them. That is the purpose of new Clause 18. It seeks to extend the allowance in respect of travelling expenses to everyone going to work. There are arguments in favour of new Clause 18 and of a wider allowance for travelling to work, but I do not accept them. I do not favour new Clause 18, although it is possible to make a respectable case for that kind of allowance. It is not possible, however, to make a respectable case for putting certain local government employees in a very special tax position.
I believe that there is only one precedent for this arrangement. There was a wartime allowance for travelling to work for people who had been bombed out of their homes and were forced to move on that account. However, those were obviously special wartime circumstances, which we hope will not recur, and I do not regard them as a sufficient basis for the proposed allowance.
Not all local government employees would benefit from the suggested concession. There are plenty of local government employees who have been and will be required by their job, and sometimes as a result of legislation, to move their place of work, The clause covers only those who are obliged to move because of local government reorganisation. It would be wrong to put that group in a special position.
There is an old Chinese proverb which says that a journey of a thousand miles


begins with a single step. This is a very small step, as my right hon. Friend made clear, but it opens up a very long journey down the road to new Clause 18. Next week when we debate the White Paper on inflation we shall be considering measures which will cause many people to change their jobs and perhaps even lose them. I should be surprised if it were suggested that we should introduce an allowance to cover people whose employment is disturbed as a result of the White Paper proposals and the Bill which will follow. This is a bad way in which to begin a journey which in any case I do not wish to take.

Mr. Peter Rees: I do not wish to consider with the Secretary of State for the Environment whether the party is over in the local government sphere, nor do I want to consider with my hon. Friend the Member for Blaby (Mr. Lawson) whether the dolce vita can be found in local government circles, in Whitehall or even, dare I say, in West-minster. Perhaps we should all be a little sensitive today on that subject. I want to defer to susceptibilities inside and outside the Chamber. This is, however, perhaps a more important new clause than might at first sight appear.
I recognise, of course, the special case which has been made with such eloquence and conviction by my right hon. Friend the Member for Crosby (Mr. Page), who spoke with peculiar authority on this point, but may I say to him and to those directly affected in local government that there are others in many walks of life who have been affected, directly or indirectly, by the decision we have taken, or at least sanctioned, in this House. I refer, for example, to those whose careers in the Armed Services may have been prematurely cut short. They do not always engender quite the same sympathy on the Labour benches as they engender outside.
I have encountered people who have had the expectation of another 10, 15 or 20 years in the Services, and perhaps even longer, and who may have bought a house in Portsmouth, Aldershot or Gosport, close to the Army or the Navy, and have suddenly found their careers come to an end. A modest measure of compensation may have been paid to

them—it is not sufficient in my opinion—and they may see their pension diminish in real terms. They may find it impossible to secure employment commensurate with their talent and experience in the area where they have bought a house, and they are then faced with the possibility of selling the house and perhaps losing money in the process, or of having to travel a considerable distance to their work. Admittedly they were given no specific assurance such as was given to those likely to be affected in local government, but their case exhibits the same point of principle.
In the private sector there will be many affected by recent economic measures who could claim with a certain justification, though perhaps not the same justification, that they too have been affected by measures that we have approved, encouraged and supported in this House. They, too, may be looking, in circumstances of considerable economic severity, for further employment and may have to travel a considerable distance to work.
It has long been said—it is always in the Treasury brief; whether it be thrust into the hands of a member of a Conservative or a Socialist administration, I suspect that the brief has always read the same way—that it is a matter of personal choice where a person lives, and that it would be quite wrong, in the cant phrase, to subsidise some people at the expense of the general taxpayer. I have never found that argument entirely an appealing one. I notice the Minister of State looking anxiously at his brief. Perhaps the very same words appear in it this afternoon. It is not for me to anticipate what he may say to the House if he catches your eye, Mr. Deputy Speaker.
The time has come when the whole question of personal allowances, reliefs and deductions should be re-examined. Life today is not what it was in 1920 when the time-hallowed principles were first involved in Somerset House. We wish to encourage mobility of labour. We wish to encourage people to buy and own their own houses. The cost of travelling has soared and will continue to increase. I need not remind the House of the level to which railway fares may rise in the autumn.
Against the altered economic and social background, the time has come to consider whether there should not be some kind of reduction or relief for taxpayers in this category. I certainly do not want to prejudge the issue but I wish to suggest to the occupants of the Treasury Front Bench that before they dismiss this new clause, if that is what they are proposing to do, with the time-honoured cliché that is trotted out in this kind of debate, they ought to think again and, if they cannot accept this precise new clause, promise to re-examine the whole principle. If they could do that, I would look with more favour than I would otherwise be prone to do on their efforts in this field. Although I do not press the Treasury Ministers necessarily to accept this particular new clause, I should be happy if they undertook to conduct a general review of this kind of problem since it affects not only local goverment functionaries but all who have suffered over the past few years.

Mr. John MacGregor: I, too, am unhappy about the new clause, first on the fairly narrow point that as far as I can see no attempt is made to distinguish in it between payments which cover the additional cost of travel to work beyond what it was before reorganisation and payments for the whole cost of travel to work. I recognise that some local authorities are making payments only for the additional cost of travel to work, in which case the new clause might be fair, but there might well be other authorities which will make payments for the total cost of travel to work and therefore, under the terms of the new clause, local authority employees would find themselves better off under this arrangement than they were before reorganisation.
My main objection, despite the remarks of my right hon. Friend the Member for Crosby (Mr. Page), is that this involves a discrimination in favour of the public sector against the private sector which it seems wrong to introduce at this time. I would tell the hon. Member for Goole (Dr. Marshall) that many people in commercial organisations and industrial concerns have had to move through no fault of their own, perhaps because their firm has decided to move from an outer London area to places like Ipswich or Norwich, where admittedly arrangements

are offered to enable employees to change to a new place of residence.
Nevertheless in that case too, as the hon. Member for Goole has said, there will be some who for family, school and other reasons will wish to stay in the same place. There would, therefore, be discrimination between the public and the private sectors. I would tell my right hon. Friend the Member for Crosby that in many cases the work of those people is the same as that of local authority employees. That is an argument which my right hon. Friend advanced in favour of this particular exception for the latter category. In many cases, where people have to make a change they are not given payment by their firm to cover the extra cost of travelling to work. Therefore, discrimination is involved.
I have considerable sympathy for all who are finding the burden of travelling to work, particularly in rural areas, increasingly heavy. We have debated a number of amendments in the past to deal with this and there is again a new clause on the Paper to deal with it. I recognise the difficulties of getting the right arrangement, and I hope that in future Finance Bills we can seek to do so. I would find it difficult, however, to justify to my constituents that this is the right way to start to deal with the problem. Many people not in local government who face exactly the same problems would wonder why public employees should get this beneficial treatment when they themselves do not. There is one particular group of people who have had to change their place of work, not because their firm has changed its location but because, sometimes as a result of Acts that we have passed—perhaps because of one clause in this Finance Bill, the provision for 25 per cent. VAT—they have found that their employment has ceased.
Living in rural areas, they may be having to make journeys of up to 60 miles to find alternative employment. In view of the fact that they have no choice their jobs having vanished because of a downturn in, for example, the television sector, they have no choice and would find it strange that local authority employees should get beneficial treatment whereas they, themselves, having to make journeys by car of 60 or 70 miles, have to do so out of taxed income.
Although there is a good case for looking at the problems of travel costs, especially in rural areas, to see whether some tax relief can be given, it is very difficult to start making that case in relation to one group of people alone.

6.30 p.m.

Mr. Tony Durant: I wish to intervene in this short debate because I have put down on the Paper an amendment, new Clause 18, which has not been selected for debate but which gives me cause to speak against the amendment proposed by the hon. Member for Goole (Dr. Marshall). His clause, I believe, is much too narrow. I do not see why local government should be regarded as unique in this situation. There have been many Acts of Parliament which have resulted in people having to travel long distances. Therefore, I do not support the hon. Member for Goole or my right hon. Friend the Member for Crosby (Mr. Page).
I put down my amendment because I represent a constituency that has been badly affected by recent railway fare increases; and my constituents are fearful of further such increases. My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) said we shall eventually have to consider some form of tax relief for travel to work expense because it is becoming an enormous part of people's outgoings. In some cases it is almost as much now as the mortgage interest. It is a toss up which is the larger outgoing. That is a problem which must be considered. Bearing that in mind, I put down new Clause 18.
I oppose this new clause. It would create bad feeling among a large number of people who are now feeling the pinch of the cost of travel to work, which is becoming such an enormous part of the family budget.

The Minister of State, Treasury (Mr. Denzil Davies): I thank my hon. Friend the Member for Goole (Dr. Marshall) for his kind remarks at the beginning of his speech and for reminding us of the long and happy hours spent in Committee on the legislation to reorganise local government. With respect, I am not sure whether the time we spent on that reorganisation was productive. Having seen how that reorganisation has turned

out I have considerable doubts and reservations about it.
The right hon. Member for Crosby (Mr. Page) made an extraordinary speech. He reminded the Committee that the origin of these payments was to be found in the Local Government Act. He said that this Government were breaching an undertaking which we gave to the Committee. That is out of character of the way he normally speaks. The allegation is untrue. He must have known that the law of the land at that time was clear. Payments made to reimburse employees for these expenses are taxable. Conversely, employees cannot, when computing their tax liability, deduct the cost of travelling to work. That was the law when the Local Government Act was passed, and for a long time before that. He said that an undertaking was given that the payment of expenses would not be subject to tax. I suggest that that is putting the case rather strongly.
If the right hon. Gentleman had wanted those payments to be tax free the Government of the day could have moved an amendment or a new clause to the Finance Bill at that time to ensure that that happened. No undertaking could have been given which would have overridden the law or the tax position. I am surprised that the right hon. Gentleman made that point.

Mr. Tony Newton: Although I am a new arrival to the debate I wish to say that the point made by the Minister seems to contradict the other points made in Committee about extra statutory concessions—for example, on cash payments to miners in lieu of coal. If that can be dealt with as an extra statutory concession why cannot my right hon. Friend's point be dealt with in that way?

Mr. Davies: The hon. Gentleman has just come into the debate. I suggest that he listens before making such contributions.
The law on taxation of travel expenses was not overridden by the Local Government Act 1972. No undertaking could have been given in those debates to override the law, and it is wrong to suggest that the Government are going back on an undertaking when the Revenue is applying the law of the land.
I take issue with my hon. Friend the Member for Goole and my hon. Friend the Member for Coventry, South-East (Mr. Wilson), who said that there is injustice to local government workers. There is no injustice. They have been treated in the same way as other employees who have similarly suffered.
The point was made that other employees also suffer. I remember the years between 1966 and 1970 when, as a result of Government policy, the coal mines in my constituency were closed. Miners had to travel longer distances to the remaining pits which were working. They had to bear the cost of travel. If they had been reimbursed for it they would have been taxed on the sums which they received. In the same way, factories can close as a result of rationalisation.
I do not think that a case has been made for this proposed change. If we give relief in this case, we must do the same in numerous others. I refer to people who live out of London, who cannot afford to live in the city, and who travel long distances. If we concede the one we must concede other cases.
I accept that there is a general problem here and that there are difficulties. However, when we look at the wider area we must try to frame legislation to mitigate some of the problems. In that case, we shall find ourselves in greater difficulties. We do not want to give relief to people who chose to live far away, who can afford to travel to work, and who do not need any assistance. I do not think that the discussion on this clause affords the right opportunity to alter the matter.
The original order introducing this concession for local authority employees was meant to last for three years. As a result of representations, I understand that the national joint council has now agreed that the payment of these expenses to employees by local authorities should be extended for a further year. I should not like to say in the presence of the Chief Secretary that that has anything to do with the taxation position. I am sure that it is coincidental. Although that concession has nothing to do with the tax position, there will be an additional benefit. The intention was that the order and the reimbursement should extend for three years.

Mr. Peter Rees: I should like to take the Minister back to the principle which he adumbrated. Under the German fiscal system relief is given for travel to work. Now that we have affirmed our adherence to the Common Market the Minister may feel that we might attempt the harmonisation of our tax systems.

Mr. Davies: The hon. and learned Gentleman is an expert on the English and German fiscal systems. I commend that. I know nothing about the German fiscal system. I concede that the cost of travelling to work is a substantial burden for thousands of people. However, if we tried to frame tax legislation to afford relief to those people we should find ourselves in considerable difficulties. Despite the fact that the Germans may in theory have found a way out, I think that if we tried to frame legislation we should encounter even more difficulties.

Mr. Graham Page: An exception was made for local government servants. The House passed an order saying that they should be reimbursed for these expenses. To that extent they have been recognised in law and by the House as being in an exceptional position. The hon. Member for Goole (Dr. Marshall) said that those people are losing as those expenses are taxed.

Mr. Davies: Those people are now receiving benefit which is often denied to other employees who suffer from acts over which they have no control. Those people receive a benefit. I find it extraordinary that we are now being asked to alter our taxation laws so that they receive an additional benefit. A case has not been made out for that additional benefit. I think that we would encounter other difficulties with other worthy groups if we did that.
I therefore ask my hon. Friend to withdraw his new clause as a result of listening to this debate, and to accept that the benefit will be extended for another year.

Question, That the clause be read a Second time, put and negatived.

New Clause 2

INDEXATION OF CAPITAL GAINS TAX

'(1) The sums allowable as a deduction from the consideration for the disposal of an asset pursuant to paragraph 4 of Schedule 6


to the Finance Act 1965 shall be altered in accordance with the formula set out below, and any reference in the enactments relating to capital gains tax to any such sums shall be construed as a reference to such sum as altered in accordance with this section—
AXB/C=D
where "A" is the sum allowable pursuant to the said paragraph 4;
B" is the retail price index for the month in which the disposal takes place.
C" is the retail price index for the month in which the sum allowable pursuant to the said paragraph 4 was expended.
D" is the sum allowable as so adjusted.

(2) This section applies to disposals after 5th April 1975.

(3) In this section "the retail price index" means in relation to periods from 1st January 1962 the general index of retail prices and in relation to earlier periods an index which shall be published by the Board.'.—[Mr. Lawson.]

Brought up, and read the First time.

Mr. Lawson: I beg to move, That the clause be read a Second time.
I apologise for the rather algebraic form in which the new clause is couched. I think, however, that it is fairly straight-forward. That is why I should like it to be added to the Bill.
The purpose of the new clause is self-evident. I think that it is the most precise way of getting at the purpose. That purpose is to ensure that the gain which is liable to capital gains tax is a real gain and not a paper gain, reflecting a fall in the value of money and the rate of inflation. If, for example, over the period concerned the retail price index were to go up by 50 per cent., the amount that would be deducted from the sale price of the assets to compute the taxable gain would be not the original cost price but one and a half times the original cost price. In attempting to index tax, it is interesting to note that it is the general price index—here the retail price index—that has to be taken.
In Committee upstairs we had debates about the mortgage tax relief limit. I am sorry that the right hon. Member for Down, South (Mr. Powell) has left his place, because he was prominent—as was the Financial Secretary—among those who put forward the misguided argument that if there is indexation, for houses one uses the index of house prices and, presumably, for Stock Exchange securities

one uses the Stock Exchange index, and so on. A moment's reflection in the context of capital gains tax will show that argument to be nonsense.
The real capital gain if a house or a security goes up in value is not measured against the index of house prices or the index of security prices but is registered against the cost of living generally—the price index generally. That is the only way to compute the true gain.
The argument that is likely to be put up against the clause might be couched in the form of a question: why single out capital gains tax for indexation and not other aspects of the tax system? I am sure that the Minister of State will put forward that argument but, as he well knows, there is one sense in which I am not singling out capital gains tax. I have argued for the indexation of all aspects of the income tax system—tax thresh-holds, tax brackets and so on. We have to deal with one matter at a time, and in this clause we are dealing with the indexation of a capital gains tax.
On the more general question of indexation, it may interest the Financial Secretary and the Minister of State to know that the General Sub-Committee of the Expenditure Committee, of which I have the honour to be a member, had before it as a witness on 20th June Sir Norman Price, Chairman of the Board of Inland Revenue. He gave evidence to the effect that there were no technical problems in the way of indexing the tax system and that it would not make any harder the job of estimating the tax yield or the yield of a particular tax in the year ahead. As some of these objections have been raised by right hon. and hon. Gentlemen when we have raised this matter in the past, I thought it might be useful to have on record the evidence given to the Select Committee by the Chairman of the Board of Inland Revenue.
As I say, why single out capital gains tax? In one sense we have not done so, but in another sense the Chancellor did it for us. I draw the attention of the Minister of State to the Chancellor's Budget Statement. The only reference to indexation in the Budget Statement as far as I can recall was when the Chancellor said:
I know that some people take the view that with present rates of inflation the time has come to introduce indexation for capital gains


tax. I am not yet persuaded that this would be right.
At that time he was not yet persuaded that anything remotely resembling a statutory incomes policy was right. Now that he has been so persuaded, however, perhaps he may by now be persuaded of the rightness of indexing capital gains tax. He went on to say:
There is, however, evidence that this tax is bearing unduly heavily on those who hold assets for long periods and is too lenient on those who hold for very short periods, and over the coming year I propose to review the incidence of capital gains tax"—[Official Report, 15th April 1975; Vol. 890, c. 311.]
That is all very well, but the only conceivable reason why capital gains tax bears hardly on those who hold assets for long periods is inflation and the absence of an allowance for inflation. If we lived in an era of totally stable prices, people who hold assets for a long period would not be at a disadvantage vis-à-vis capital gains tax. It seems to me that the Chancellor has agreed—to use a phrase of which we shall hear much more in future in a slightly different context—that capital gains tax is a special case.
6.45 p.m.
There is good reason why it is a special case. In the context of the indexation of income tax, the income is there. In real terms it may be slightly less than it appears to be and, therefore, the taxation is a little too high, but the income is there and it is being taxed. With capital gains, however, there are many cases where in real terms there is no capital gain but there is a loss. Something which is totally non-existent in reality is being subjected to a tax which is specifically meant to be confined to capital gains. That shows that the Chancellor was justified in considering capital gains tax to be a special case.
I am well aware that this point is not a new one. As long ago as the debates in Committee on the 1972 Finance Bill, my right hon. Friend the Member for Wan-stead and Woodford (Mr. Jenkin), who was at that time Chief Secretary, said:
it would be unjust to tax paper profits—profits that are not genuine because they are due to a rise in monetary not real value."—[Official Report, 10th July 1972; Vol. 840, c. 1354.]
It is worth bearing in mind why capital gains tax was introduced in the first instance. I quote from what the then

Chancellor of the Exchequer—the present Foreign and Commonwealth Secretary—said in his Budget Statement in 1964:
I intend to make a start next spring with two major tax reforms. The first will be a capital gains tax. The dividing line between capital and income has become blurred. The income tax system has been misused by some to avoid paying income tax by entering into arrangements which dress up income, which is taxable, to look like capital, which is mainly untaxed."—[Official Report, 11th November 1964; Vol. 701, c. 1039.]
What the then Chancellor of the Exchequer of the then Labour Government was trying to catch was a form of income dressed up as capital. It has turned into a totally different tax—a tax that is not a tax on income, however disguised, but a tax on capital, a form of wealth tax.
Again, I quote what was said by the Financial Secretary's immediate predecessor—now Minister of Transport—in Committee on the 1973 Finance Bill. Referring to one of my hon. Friends, he said:
He sees this as a form of wealth tax"—
that is, capital gains tax—
and I accept that. It is an arbitrary form of wealth tax, however, because it falls on those who have to realise their assets in certain circumstances … the way in which we tax capital gains at the moment is unfair, and I believe that we can remove the element of inequity, which is what the clause is attempting to do. In order to get an overall fairness into our tax system, however, as far as capital is concerned, we ought to have a wealth tax."—[Official Report, Standing Committee H, 23rd May 1973; c. 615.]
As right hon. and hon. Members will know, a Select Committee, of which I have the misfortune to be a member, is beavering away at the wealth tax. Indeed, I think that the Committee is sitting at this moment. Capital gains tax has turned into a totally arbitrary kind of wealth tax and it can no longer have any justification in anything like its present unindexed form. That is why last June, during the passage of the Finance Bill, we moved a similar clause to the one now before us. My right hon. Friend the Member for Carshalton (Mr. Carr), who was then Shadow Chancellor, said:
We shall not get strength and confidence in investment if at one and the same time we have inflation at this rate and real capital losses and then insist on taxing not capital gains but capital losses."—[Official Report, 13th June 1974; Vol. 874, c. 1974.]


On that occasion we divided the Committee, but I am sorry to say that the Government had a majority of 18 votes. It is clear from what I have quoted that it is accepted on both sides of the House that the capital gains tax, which was originally introduced to deal with income dressed up as capital, has now become an arbitrary, unfair and capricious tax on wealth.
Indeed, it is a tax which is imposed at a very high rate. That is not fully realised. During the past year we have had inflation running at a rate of 25 per cent. Let us assume that an asset—it does not matter what it is; it can be any asset liable to capital gains tax which has increased in value but only in line with the rate of inflation, thereby producing no gain in real terms but merely holding its value—is subject to capital gains tax at 30 per cent. on a notional 25 per cent. appreciation. That is equivalent to a 6 per cent. wealth tax—namely, a 6 per cent. tax on the full capital value. I can see that the Financial Secretary is having difficulty so I shall explain the position to him. He will understand that 30 per cent. of 25 per cent. is 7½ per cent., and that 7½ as a percentage of 125 is 6 per cent. That is equivalent to a 6 per cent. wealth tax.
Let us consider the rate at which wealth tax is applied overseas. In Germany, for instance, the top rate is 0·7 per cent. In the country in Europe which has the highest wealth tax rate—namely, Sweden—the top rate is 2½ per cent. Even in the Green Paper issued by the present Government the two top rates chosen for the alternative systems are 2½ per cent. and 5 per cent. Those rates would not be brought into effect except for wealth amounting to £5 million. Here we have a 6 per cent. wealth tax on sums which, far from being in excess of £5 million, are probably so low that they would not be subject to wealth tax as proposed in the Green Paper. This is not only an arbitrary and unfair form of wealth tax but a swingeing wealth tax. It is being imposed at a time when our capital taxation is higher than in any other country in Western Europe as a proportion of GNP and as a proportion of total tax revenue.
It is true that the wealth tax as such has not yet been introduced. Having heard certain evidence, I hope that if it

is introduced it will not be anything remotely resembling the form in which it is presented in the Green Paper. Further, if it is introduced I hope that there will be substantial offsets. Of course, since the various debates that I have mentioned we have had a further capital tax imposed—namely, capital transfer tax. The interaction of capital gains tax with capital transfer tax is of the utmost seriousness. The combined effect of those two taxes on transfers could be crippling to small businesses and farms.
We pressed very hard for a reduction in the severity of capital transfer tax, but the Chief Secreary and his colleagues took the view that it was not capital transfer tax we should be going for but capital gains tax. They conceded that the two taxes together were much more severe.
I shall quote what the Chief Secretary said on this matter in Standing Committee. After being tackled on this point—namely, the accumulation of capital gains tax and capital transfer tax—he said:
I hasten to add that I accept that in certain instances it can be unfair. Where a man has been running his company from 1965 for 10 years a substantial liability to capital gains tax would accrue. The answer there lies more with a reform of the capital gains tax, whether it be by way of indexation, which the hon. Gentleman"—
that is, myself—
is so fond of, or another way which others may prefer, a more progressive or different way of dealing with capital gains tax."—[Official Report, Standing Committee A, 11th February 1975; c. 1176.]
Perhaps we shall be told the nature of that different or more progressive approach. Thus it was conceded by the Chief Secretary that the accumulation of the two taxes was excessive in its effect and that we should deal with the problem of capital gains tax. That is what we seek to do by means of the clause.
The time has come for the talk to end and for the Government to act. As an Opposition we are in the inevitable difficulty that we can recommend only matters that would cut revenue; we cannot recommend any changes that would increase revenue. I hope the right hon. Gentleman will take it from me that we do not wish to do anything which would lead to an increased public sector borrowing requirement. Of course, we cannot cut Government expenditure as we would wish. We must remember that in the


White Paper it is made clear that the Government wish to increase subsidies.
I hope that in this debate we shall be told the total yield of capital gains tax. I understand that in the coming year it is expected to be £325 million. How much of that would be lost by acceptance of the new clause? Perhaps we shall be told what the rate of wealth tax already is in this country—namely, the wealth tax element in capital gains tax. These matters will be of considerable interest to the Select Committee.
Let us have no more prevarication. I hope we shall not hear the argument that this is not the time to act because we do not have a serious rate of inflation. That suggests that inflation is something evanescent and ephemeral in our society. I wish it were so. Given the Chancellor's target of a rate of inflation of 10 per cent. by September 1976, to talk about inflation as something ephemeral is an insult to the House.

Mr. Ridley: We should pay tribute to my hon. Friend the Member for Blaby (Mr. Lawson) for his assiduous pursuit of indexation on all occasions. I have always had some doubts about the argument for indexation of direct taxation. I believe that indexation of direct taxation would have great advantages if we were ever to have a Government who sought to reduce the rate of inflation. It is a necessary concomitant of a return to stable money. Since, instead, we have a Government who have just announced a packet which will put up the rate of inflation, based on seeking to increase the borrowing requirement, I am not so certain that indexation is appropriate in that respect. However, I entirely agree with my hon. Friend the hon. Member for Blaby that indexation of capital gains tax is highly desirable.
7.0 p.m.
If we go back through the history of this tax we can see how Governments change their objectives and how their aims become corruptive. You yourself, Mr. Speaker, in your wisdom and with the purity of your motives, introduced a short-term capital gains tax designed to tax speculators on quick profits. It was the mood of the day to hit those who go into a market and come out again within six months, so that they

should pay some part of that profit to the community. I was not particularly enamoured of that proposal. I believe that the speculator plays an important part in society. Anybody who seeks to pursue commodity agreements and to stabilise prices of commodities is seeking to perform the function performed by speculators.
The Labour Party then introduced the long-term capital gains tax, and in due course my right hon. Friends recognised the situation by abolishing the short-term capital gains tax which you had introduced, Mr. Speaker, and they kept the long-term capital gains tax against which they voted when it was introduced. It is strange that that which we voted against we kept, and that that which we introduced we abolished. But that is history.
All those taxes were devised to catch the quick profit. What we now have is a permanent and swingeing levy on capital—and the steeper the rate of inflation the more punishing—and a charge upon the change from one asset to another. This is a capricious and arbitrary form of tax. It is particularly obnoxious because the higher the rate of inflation the more swingeing is the tax. It is a tax on those who have capital assets, and the rates are determined not by any sensible criterion but by the extent of the profligacy of the Government. The more profligate they are the more of the capital stock of individuals they seek to take.
I believe that the Chief Secretary is right to review this tax. I am astonished that he has gone that far. The Chief Secretary is such an attractive and charming man that one is inclined to be beguiled by him. I thought the right hon. Gentleman would have had nothing to do with the tax at all, but that was a wrong assumption. I believe that the right way to review the tax is to abolish it altogether. We have now the capital transfer tax and we are promised a wealth tax. Therefore, there is no need to have a capital gains as well, but if it is to stay, very much the second best course would be to index it.
What worries me is the Chief Secretary's use of the word "progressive" in the passage quoted by my hon. Friend the Member for Blaby. I have a suspicion that in the present context that


means "The bigger the capital gain the higher the rate of tax". This means that as the situation becomes more inflationary and people have larger paper gains the greater will be the slice taken by the Government, and that from those who make a small gain a smaller share will be taken by the Government. However, if that is the situation, we shall find it utterly obnoxious. It means that the more the Government hot up the rate of inflation by deliberate actions the more they will take over the assets of people, if those people still have assets left.
The Government do not appreciate the extent to which the economy is not growing but declining. That decline is due to the taxation imposed by the Government. The Government have not come to terms with the fact that people cannot pay the swingeing capital taxation in which the Chancellor so delights, and which the Chief Secretary defends with such cherubic optimism, and at the same time run a capitalist system in which the ownership of assets resides in individuals. Perhaps the Minister of State in reply will say that he does not care, and believes that all capital should be held by the State. If he takes that view, at least we know where we are, but if our economy is to produce successful businesses, and if people are to take risks, and indeed, if we contrive to invite people to produce employment and work to increase our economic growth, such a Government and taxation system becomes incompatible.
It is not difficult to discover people's feelings on these matters. If people are asked why they are leaving the country, or not undertaking certain business, or why their sons are not taking over businesses, those people say "It is not worth it. If I succeed, they take it away from me, and if I fail—I fail anyway. It is better to go to a country where the successful entrepreneur is treated better."

Mr. Nott: Or work for a local authority.

Mr. Ridley: Or, as my hon. Friend says, work for a local authority, where the security is very much better, because there is no chance of the numbers employed in local authorities doing anything but grow, and nobody is ever made redun-

dant. What will happen is that the whole population will work for local authorities and there will be nobody left to pay the rates.
I believe that we should index capital gains tax, but I would prefer to see it abolished. The effect of these taxes on the so-called rich and on our country's economy is cumulatively intolerable. I hope that when my Conservative colleagues return to power they will abolish capital gains tax. It is the most wicked of all the taxes. If there were a choice, I would say that capital transfer tax should stay rather than capital gains tax. Capital gains tax discourages the living and those who seek to make money for themselves and for the country. In many ways the tax is symbolic of the Socialist disease which afflicts the nation —namely, that those who are successful should be penalised by the Government. The Government surely must recognise that with an annual inflation rate of 25 per cent., the incidence of capital gains tax is a windfall which they should not pick up.
The Minister of State, Treasury, should not be content to defend these matters at the Dispatch Box. He should feel some sense of shame. I know that he has been a Treasury Minister for only a short time, and we came to respect and like the hon. Gentleman in Committee, but there comes a time when he should not stand at the Dispatch Box and seek to defend such matters—[interruption.] Does the right hon. Member for Down, South (Mr. Powell) wish to intervene?

Mr. J. Enoch Powell: I wanted to be reminded by the hon. Gentleman when he resigned. Or did he not wait until he was kicked out before he expressed his views on these subjects?

Mr. Ridley: I am glad that the right hon. Member for Down, South has stopped muttering from a sedentary position behind me, because I found it difficult to identify him. Now that he has made his intervention public, I seek to remind him that the rate of inflation was about 5 per cent. in 1972 and, although he knows that on many occasions I have opposed capital gains tax, it is infinitely more pernicious when the rate of inflation reaches 25 per cent.
The right hon. Gentleman has asked me why I did not resign. I remind him


that my conscience need suffer for nothing which I defended when in Government. If the right hon. Gentleman can remind me of anything I said when I held office which I would at present regret, I would respect him the more, but as he has not done so I do not know what he is talking about. Therefore I would be grateful if he would keep his own conscience to himself and allow me to be the guardian of mine.

Mr. MacGregor: As my hon. Friend the Member for Blaby (Mr. Lawson) has said, we have had many proposals of this type over the years. Indeed I think it must be the most common amendment proposed on Finance Bills and a regular feature of finance debates. The arguments have been gone over many times, and I thought that my hon. Friend the Member for Blaby developed them with great persuasiveness and skill.
The House is none the worse for hearing these arguments year after year, because, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, as inflation gathers pace, capital gains tax becomes even more pernicious and it becomes even more right that we should press for an amendment of this sort. When I look at the debate we had on Report last June, I find that the argument was then being pressed that because of the rising rate of inflation an amendment or new clause of this sort was even more imperative. However, now we have reached a year in which we have faced inflation of 25 per cent.—a rate much higher than before—and thus the case for such a change has become more important still.
I have gladly put my name to this clause, although I think that in one sense it is a pity that we talk about this as another indexation-of-capital-gains proposal. I should like to refer to what the then Financial Secretary said in the debate last year. He said:
Suffice it to say that I am sure that the hon. Gentleman
—he was referring to the proposer of the amendment—
recognises that once the principle of indexation is conceded in the tax system it is capable of indefinite expansion. No sooner do we have indexation of capital gains than we have

the problem of the indexation of profits and the putting up of a case for the indexation of basic income tax ".—[Official Report, 13th June 1974; Vol. 874 c. 1973.]
I happen to support the case for indexation, but here we are talking about a rather different principle. If the Government's argument against the clause is the same as that advanced by the Financial Secretary last year, I should like to briefly develop the point.
In the case of the indexation of tax thresholds, we are trying to ensure that the tax threshold each year is at the same real level as it was in the previous year. We are not talking about the principle of taxing income.
In the case of capital gains tax under the present system we are not taxing capital gains at all. As has been made clear, we are talking about taxing capital. Therefore, I believe that the argument we should be seeking to advance concerning capital gains tax is that the principle is nearer the wealth tax than the indexation argument applying to the rest of the tax system.
Although I have put my name to this clause, on balance I should prefer a different arrangement for the reform of capital gains. I shall go back to what the Financial Secretary said last year, because in the next sentence he said:
To say that it would simplify the tax system is nonsense."—[Official Report, 13th June 1974; Vol. 874, c. 1973.]
I believe that one of the simpler ways of simplifying capital gains tax, and yet recognising that we are not taxing capital gains, would be to introduce a reform along the lines that for two years it would be taxed at 30 per cent., after four years at 20 per cent., after six years at 10 per cent. and after eight years there would be no tax at all. The actual figures can be argued, but that is one way of doing it. At a time of high inflation that would be a simple way to take account of the point that we are taxing capital and not capital gains.
7.15 p.m.
There are two overwhelming arguments for a new clause along these lines or those I have described. The first is that the present capital gains tax is a fraud. Several examples have been put forward of how over the years people have osten-


sibly made capital gains but in fact have not done so. Perhaps I could illustrate the point. It is now necessary, in terms of a so-called capital gain, that that capital gain since 1965 should have much more than doubled to enable the holder of the capital to break even in real terms. Over a 10-year period that shows very clearly the effect of taxation, because one of the important reasons for the need for it to grow at that pace is that the so-called capital gain is taxed at 30 per cent. That shows very clearly, over a 10-year period, the nature of this fraudulent claim that the individual has made a capital gain.
Let us take the last year alone. It is now necessary, for example, on capital of £1,000, to have had an ostensible gain of £350 in order to break even in real terms. I grant that £250 of that is for inflation. However, there is an extra element of £100 which has to be achieved in order to pay the tax and then to get back to the same situation in real terms. Therefore, the first strong argument is that this is now a totally fraudulent tax which is not a tax on capital gains at all.
The second argument is that it is yet another disincentive to saving. There are many things wrong with the present tax system, such as the combination of keeping the thresholds where they are and increasing the rate at a time of inflation. The present system has many disadvantages. I am convinced that we are beginning an era in which we shall see more and more evasion of tax by people who in the past would never have dreamt of doing so. They will now do so because they think that the tax is totally unfair. They look at the capital gains tax and see that they are in fact being taxed on something which is not a capital gain. That leads them even further to believe that the tax system is unfair.
I do not want to go into all the arguments about the disadvantages of our tax system. However, a further difficulty of capital gains tax is that it is encouraging people not to save in any area where they think they may have a possible capital gain. We know of many examples where people are taking the rational decision in an era of high inflation, with tax at this level, of simply spending all they have. That cannot be in the national interest.
I believe that a proposal of this sort would go some way to deal with that matter. I well recall the debate on capital transfer tax earlier this year when the present Minister of State—given that we have to have Labour Ministers, I certainly welcome him and I am glad to see him on the Front Bench—made a speech from the back benches on capital transfer tax and capital gains tax. He very powerfully advanced the argument to his own Front Bench—and by implication he had in mind the point we are making now—that capital gains tax is not a proper capital gains tax but a combination of the two and that that was the danger about what the then Government were doing. He asked that Labour Ministers should look at the matter again. I believe that he brings a fresh mind to the matter and for that reason I welcome him to the Front Bench. I hope that, within the Government and within the Treasury, he will show his willing-ness to question capital gains tax and the combination of capital gains tax and capital transfer tax and that he will expedite the day when we see some reform proposed from his own Front Bench. It is too long to wait for another year before he is able to produce his own amendments.
I hope that we do not hear the argument that because a wealth tax is being examined by a Select Committee and because the capital gains tax has some analogies with wealth tax, we should wait until a total review has taken place. In that situation, as my hon. Friend the Member for Blaby has said, we shall almost certainly have to wait for a year when inflation will probably still be at the rate of 25 per cent. We are piling on each year the nonsense that capital gains are being taxed when in fact they are not capital gains. It is for the Government to try to deal with the situation now.

Mr. Hordern: I should like to put one further point to the Minister of State. There have been many debates over the years on the indexing of capital gains. There have also been debates about other forms of taxation, notably taxes on companies, and suggestions that they should also be indexed in part. That principle appears to have been accepted in the stock appreciation provisions in the Bill.


It is difficult to imagine what the Sandi-lands Committee has been considering if it was not the principle of allowing indexation for stock appreciation.
The Government have allowed the stock appreciation principle to be applied not only to companies but to partnerships and individuals. There is a provision in the Financial Statement this year where for individuals and partnerships £70 million is applied to relieve stock appreciation.
What is the difference between allowing stock appreciation relief for an individual or a partner in a partnership and allowing a form of indexation, which the new clause proposes, on the increase in capital brought about by inflation? The stock held by a partnership is in every way within the ownership of the individual partners. The stock of that partnership is allowed for tax purposes to be deducted from the earnings of the partnership for the purpose of stock appreciation. I do not see the real distinction once it has been accepted that there is to be stock appreciation for companies, individuals and partners. I hope that the Minister will pay attention to that point.
As my hon. Friend the Member for Blaby (Mr. Lawson) said, the Government's proposal amounts to a tax on wealth. There is no longer any question of a tax on real capital gains. It would not be difficult to sort out what the real capital gain was. But in all these areas—this was the reason for the appointment of the Sandilands Committee and for the stock appreciation provisions—with inflation running at 25 per cent., it must mean that there is a tax on resources, not on capital appreciation.
I shall not trouble the House further. I should like the Minister of State to tell us what distinction he is able to draw and to define between the appreciation in stock held by an individual and in the capital which that individual may hold.

Mr. Denzil Davies: We have had an interesting debate, although it has not really centred specifically on the new clause proposed by the hon. Member for Blaby (Mr. Lawson).

Mr. Lawson: The Minister means that it has not centred on his brief.

Mr. Davies: I have written my own brief.
The new clause specifically deals with the indexation of capital gains. However, I thought that I detected less enthusiasm in the hon. Gentleman's speech than in previous speeches that he has made on the subject of indexation. I may be wrong, but I thought I detected a lack of enthusiasm.
In other speeches, while points have been made about the problems created by inflation and capital gains tax—I shall come back to those matters later—again I detected perhaps a little less enthusiasm for solving those problems by means of indexation. I think that is a fair analysis of the way that the debate has gone.

Mr. MacGregor: Does the Minister accept that, if that is his impression, it is our fault? I was endeavouring to point out that there was a separate argument on capital gains. However, it did not mean that I had removed my feelings about indexation elsewhere.

Mr. Davies: I accept that there are separate arguments and problems. I am surprised that the Opposition Front Bench did not put down a new clause which did not go as far as indexation, but might have been said to try to deal with those problems. We have not had that kind of new clause. We have a new clause—

Mr. Lawson: It is a very good one.

Mr. Davies: It is an excellent, well-drafted new clause. It sets out clearly the principle of indexation for the purposes of capital gains tax. That is the new clause to which we must speak.
I confess that I am sceptical about the virtues of indexation in general. Indexation, if it ever came about, would merely in the end be a cosmetic exercise which would possibly appear to alleviate the symptoms of inflation without doing anything to attack the causes. It would be guileless if it ever came about—I do not think that it ever will in this country—to believe that we had done something to solve the problems of inflation. I recognise that there are different views in all parties. However, I do not see how indexation of taxation in general, or in other areas which would have to follow, would solve the present problem of inflation. It does not get to the cause of the problem.

Mr. Lawson: For the sake of clarity and for the record, may I say that neither


I nor my hon. Friends have at any time suggested that indexation in general or in particular would solve the overriding problem of inflation?

Mr. Davies: I did not say that it had been suggested. The hon. Gentleman in a previous debate admitted that indexation was becoming fashionable and that for that reason even he had doubts about it. The danger is that if we go along this way, we may be sidetracked into believing that in some way or other we are solving problems of inflation when we are not.

Mr. Lawson: indicated dissent.

Mr. Davies: The hon. Gentleman shakes his head, but I think that is the danger.
The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) made an extraordinary speech. First he said that he was not in favour of indexation. Indeed I should expect that from him, knowing his views generally on financial matters. I was then surprised to hear him say that he favoured the indexation of capital gains tax, but he wanted to abolish it. The hon. Gentleman is a member of a party which was in Government for four years. That Government did not abolish capital gains tax. They did not introduce different forms of capital gains tax to alleviate the problem of inflation. We had inflation in those four years, although I agree that towards the end of that period inflation was increasing. Therefore, I could not really understand the logic of the hon. Gentleman's speech.
I accept that stock appreciation is a mild form of indexation. It was introduced not as a temporary measure but as a stop-gap measure until the Sandi-lands Committee could look at the matter and report on it in detail. We do not know what that Committee will say. However, I accept that in stock appreciation and other areas we have to some extent accepted something which looks like indexation.
The new clause goes much further, because it asks us to index a major capital tax. The first weakness of the new clause is that it singles out one major capital tax for indexation.

Mr. Lawson: So did the Chancellor.

Mr. Davies: The Chancellor was responding to a suggestion that had been

made to him. He did not say that he favoured indexation. The hon. Gentleman favours indexation of capital gains tax. However, I do not believe that he can stop there. Once we accept indexation of capital gains tax, I do not see how, in fairness or in justice, we can deny indexation of income tax which is paid by the majority of people in this country. If the owners of wealth and capital are to get the benefit of indexation—if there is a benefit—we cannot deny the same benefit to the majority of people who pay the bulk of the income tax.
The hon. Member for Norfolk, South (Mr. MacGregor) tried to draw a distinction between indexation of allowances and of capital gains. I could not follow him. I did not understand the distinction that he drew. There is no distinction in principle between the two.
My first reason for rejecting the new clause is that we cannot stop at the point which is proposed. We have to go on to other areas of direct taxation and income tax. The hon. Member for Blaby has argued in the past for general indexation. I accept that there may be a case for that proposition, although I disagree with it. If we have general indexation, however, we must accept that at a time of high inflation the immediate consequence would be a reduction in the Government's revenue. If we had general indexation of capital and income tax, the revenue would fall.
The hon. Gentleman asked me by what figure the revenue would fall if we accept the new clause. I cannot give the answer to that because we do not know it. It depends on many factors—the length of time the assets are held, the rate of inflation and so on. I am not putting the hon. Gentleman off. It is not possible to work out, as far as capital gains tax is concerned, what is the loss to the revenue or the shortfall.

7.30 p.m.

Mr. Lawson: This is most extraordinary. In that case how does the Minister of State say that the figure for the yield of capital gains tax in its present form of £325 million in the coming year is estimated? That, too, depends on how long securities are held, the rate of inflation, when they are disposed of and so on.

Mr. Davies: I have given the hon. Gentleman the answer and I cannot honestly stand at this Dispatch Box and give him a precise figure. It would be meaningless to try to do so. I would expect the shortfall to be fairly substantial, but I cannot say any more than that because I cannot give a figure.
Hon. Gentlemen have argued in the past that in some way or other, if we had indexation of capital gains tax—on my argument it follows that if we did we should have to have it on income tax—this would be some kind of discipline on the Government, and that Governments would have to come to this House and increase the rates of taxation or do certain other things. I do not believe that this is a realistic argument. At the end of the day, whether we have indexation or not, Governments will still have to decide, and the House will still have to decide between the conflicting claims of raising revenue for taxation, borrowing, reducing public expenditure and increasing public expenditure. This is no way of dealing with those hard, difficult decisions which still, in the end, will have to be made in this House and according to the political priorities of the majority of the House. Therefore, the first reason is that we could not stop at indexing capital taxes. We should then, in logic and fairness, have to extend it to indexing income tax, and then we should get into further problems.

Mr. Ridley: On that point, the Government in nearly every year have greatly relaxed the incidence of income tax, to reflect the change in the value of money, by altering the personal allowances. Since they have in that way de facto indexed income tax to some extent, when will they de facto index capital gains tax?

Mr. Davies: Perhaps I can come back to the point concerning capital gains tax a little later because, as the hon. Gentleman knows, we are having a review of capital gains tax, and I could not say anything specific in relation to that review. But we are looking at it, as the Chancellor of the Exchequer has said.
Once we move into a general indexation of direct taxes, I do not believe that we can stop there either. I do not believe that we can stop at the relationship between the taxpayer and the Govern-

ment, which is an important relationship. But there are other relationships, and then we are driven logically and in equity to move into other relationships and areas and to apply indexation there.
The hon. Member for St. Ives (Mr. Nott) has stated this on a number of occasions, and I think we should be driven towards general indexation. If we argue it from the point of view of fairness and equity, why not index the interest paid to a building society? The present situation may be unfair in regard to the relationship between building society and mortgagor. Why not look at the position of the pension fund that happens to be a landlord and holds a lease with a seven or 14-year review clause? Why should we not then index the rent payable under that particular lease because we are depriving the pensioners of receipts as a result of the effect of inflation on the value of the rent?
The argument can be taken further and applied to a developing country with one or two commodities to sell on the world market. Why not move into that area?
These are the problems that we face, and I do not think we can accept an amendment relating to the indexation of capital taxes without considering all these other problems—the whole field of taxation, the whole economic field, and the repercussions that there would be.
Having said that, I accept—perhaps a different clause should have been put down—that there are problems in relation to capital gains tax and inflation. My right hon. Friend the Chancellor of the Exchequer, the Chief Secretary to the Treasury and Treasury Ministers have accepted this. The hon. Member for Norfolk, South quoted a speech that I had made in Committee. We have accepted that there is a problem. What we do not accept is that this problem can be solved by introducing this rather fashionable and beguiling concept of indexation, for the reasons I have given. We are now looking at capital gains tax, and the review will obviously take into account everything said in this debate and in previous debates on this subject.

Mr. Lawson: Will the Minister say what the problem is in his opinion?

Mr. Davies: The problem, quite clearly is inflation. I have not tried to conceal


it. The reason for this clause having been put down is presumably inflation. My point is that in the way it is drawn, relying upon indexation, it will not solve the root cause of the problem, which is inflation. That is why the Government have introduced measures to bring down the rate of inflation. That is the problem at the root of the clause. The hon. Gentleman may laugh, but the clause will do nothing to solve the problem of inflation.
We accept that there are problems in relation to capital gains tax, certainly in the case of people who have held assets for a long period of time. Their position is aggravated by inflation. We are reviewing capital gains tax, as I have said already, and will take into account everything said here.
The official Opposition recognises the problem and castigate the Government for inflation. Therefore, I am surprised that the Opposition did not see fit to put down a new clause—less expansive, perhaps, in its scope than the indexation clause—to try to deal with this problem.
There are many precedents, the United States Government have tried to deal with the problem by having different rates of capital gains tax in relation to the length of time for which an asset is held. That might be a way of dealing with it. I do not know. It creates anomalies and I am not putting it forward as a suggestion. I should have thought that an Opposition who were very worried about this matter would be more concerned to put down that kind of clause than a general new clause which merely tries to import the concept of indexation.
At the end of the day the problem is inflation, and it can be dealt with only by reducing the rate of inflation. Indexation is a false solution. It will not solve the problem. But bearing in mind that we are having a review, and that we accept what has been said, I hope that Conservative Members will at least accept that we are in earnest, and that this clause will be withdrawn and not pressed to a Division.

Mr. David Howell: I am glad that the Minister of State, towards the end of his speech—which he told us he had put together himself—recognised that there is a problem. The earlier part of his remarks was so very discouraging and

damning as to the difficulties that have arisen in this area that I began to think he would not be in agreement even with the undertaking made by the Chancellor of the Exchequer in the Budget speech and his assertion that, in the light of evidence that the tax is bearing unduly heavily on people holding assets for long periods, and is too lenient on those holding assets for short periods, he proposed over the coming year to review the incidence of tax. Towards the end of his speech, however, the Minister came round to that part of the official line, and that is something to be thankful for.
I think that my hon. Friend the Member for Blaby (Mr. Lawson) did a great service to the House by taking us back, as did my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), into the history of this tax. It is in the history and the attitudes taken up that we find the springs of our present discontents. We have to understand what was originally intended in order to understand how hopelessly inadequate are the present arrangements to meet even what was originally intended, whether one agreed with that or not.
I think it was my hon. Friend the Member for Blaby who quoted the words of the then Chancellor of the Exchequer on 11th November 1964, when the new Labour Government had just taken office. The then Chancellor of the Exchequer said:
The Income Tax system has been misused by some to avoid paying Income Tax by entering into arrangements which dress up income, which is taxable, to look like capital, which is mainly untaxed."—[Official Report, 11th November, 1964; Vol. 701, c. 1039.]
That was the spirit of the time.
But it went even further. The argument was put forward in 1955 to the Royal Commission on Taxation by Mr. Kaldor, as he then was, that, in the light of what seemed then to be the certain and continual annual growth in equities which was being underwritten by the growth policies of the Government, there would be an automatic increase in the equity value of shares held. This generated an incomes stream which was not being taxed, and this was entirely wrong. Therefore it was right that taxation should be adjusted by the introduction of a capital gains tax to tax this continuing,


rising stream of income which would flow from those fortunate to hold equities.
Too many people were redefining their income as capital or gaining income from the growth of equities and calling it capital rather than income and thereby avoiding taxation. That was the spirit in which the movement for the long-term capital gains tax grew and those were the arguments on which the introduction of the long-term tax was based.
Today, things are totally different. First we have the appalling inflation rate. Secondly—let us hope that it is only a passing circumstance, although it seems to be passing very slowly—we have long since said goodbye to the idea of the annual growth in the value of equities right across the board as a result of the steady and persistent achievements of successive Governments in our economic growth. That has not come out as planned at all.
Instead, we have had for a time a lurch to a dead stop in economic growth. We have had a lurch into rates of inflation which we would not have believed possible 10 years ago. They have produced these remarkable figures, of which the simplest and most obvious came from my hon. Friend the Member for Norfolk, South (Mr. MacGregor) that £1,000 invested in 1965 is £2,250 in 1975 with a purchasing power which is exactly the same and which is exactly the same amount in real terms while the figures are well over double.
Against that background, we require the Government to address their mind seriously and urgently to the problems involved.
The Minister of State spent a considerable amount of time pouring cold water on the idea of indexing and the principle of monetary correction. He said that this was no way to solve our difficulties. My hon. Friend the Member for Blaby was right to intervene to say that no one who had been into the matter seriously had ever suggested that monetary correction was a solution to the inflation problem. It would be absurd to suggest that this of itself was a solution to the problem.
The Minister of State went on to say that this was all cosmetics. However, cosmetics are not always bad. Some people would say that at times they can render a

great improvement to certain features. I do not think we should be quite so ready to use the word "cosmetics" so dismissively, always implying that any attempt to improve appearances is bad and is to be frowned upon.
Over the whole question of monetary correction there is a great deal of humbug. I suspect that it is part of our national character to say that indexation is immoral and that monetary correction is undesirable, and for Ministers to say how impossible it is to index capital when all the time we are indexing and moving from one tax to another.
7.45 p.m.
We are moving into indexed bonds and stock appreciation. The Minister of State said that stock appreciation was temporary. When we debate the next new clause, we shall want to go into that statement more carefully. Our understanding and the understanding given by the Chief Secretary was that it was anything but temporary. Until we get that cleared up, we shall press the Government very hard. Our understanding is that stock appreciation provisions are here to stay. That is part of our affairs is indexed.
Pensions are indexed. Civil Service pensions are effectively indexed. The Government have now put one toe in the water over the indexing of bonds and others forms of lending money to the public purse. All this is going on. No doubt while it is going on we shall hear lectures about how impossible it is for indexing to be introduced. All the time indexing is creeping in.
We have to be a little more flexible than the Minister was in his dismissal of indexing. Although it trips easily off the tongue to say that we cannot index anything without indexing everything, the fact is that many things have been indexed already and quite a lot of people, organisations and forms of financial transaction are already piling on to the index escalator.

Mr. Denzil Davies: Do the Opposition support the clause and the principle of indexing capital gains?

Mr. Howell: I shall explain clearly where the Opposition stand. The main thing to establish is where the Government and the Chancellor of the Exchequer stand having given indications that the


problem would be solved. Shall we have to wait another year with 20 per cent. to 25 per cent. inflation while capital gains tax is levied once again on nonexistent increases in real capital? Shall we have another year of a selective tax on wealth? Is that the way the Government intend to proceed?
The Minister of State asked me where the Opposition stood. We think that the capital taxation which has been brought in, the evaporation of the orginal purpose of the capital gains tax, the introduction and the interaction of the capital transfer tax with the capital gains tax, and the threats and veiled intentions which are being unfolded vis-à-vis the wealth tax have all combined to make capital taxation a complete shambles. The urgent need is for the Government who have made this mess to begin to put together some orderly form of capital taxation. It is Treasury Ministers who are the chief architects of the shambles which has emerged in capital taxation. They should be putting it right. I can understand the Chancellor of the Exchequer telling them to get a move on and do it and not leave us in this chaotic situation.
I was interested in the inability of the Minister of State to give us any estimate of the revenue. We have been conscious of the need to prevent further moves by the Government to increase the enormous public sector borrowing requirement. Even so, they continue to make some moves. We shall not add to them. Therefore, although we cannot be told the revenue implications, I shall not advise my right hon. and hon. Friends to press the new clause.
The Opposition take these matters seriously. We do not believe in shovelling out White Papers which increase the public sector borrowing requirement and food and council house subsidies. We believe that the capital taxation issue is one of the most important today. It is having a very serious effect on investment and on what remains of any incentive to invest in new equipment and to build up successful enterprises. The sooner the Minister of State and his voluble friends beside him stop their giggling and get on with the job of reorganising capital taxation, the better it

will be for investment, for jobs, and for the workpeople.

Mr. Lawson: I am very glad that my hon. Friend speaking for the Opposition Front Bench has shown a considerably warmer and more welcoming attitude to this new clause than the Government. When I heard the Minister of State say that the problem was inflation—as if we needed to be told that—and that the problem of capital gains tax could not be solved until the problem of inflation had been solved, I thought that we would never solve the problem of capital gains tax. Then the Minister told us that there would be a special review of the particular problems of capital gains tax this year and that he would not wait until we had solved the problem of inflation. On that understanding, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 4

AMENDMENT OF S. 193 OF TAXES ACT 1970

'Section 183 of the Taxes Act 1970 shall have effect in relation to tax charge for 1975–76 as if at the end of subsection (2) there were inserted—
(3) Tax shall not be chargeable under Case I or II of Schedule E under the provisions of this Section, section 196 of this. Act or section 36 of the Finance (No. 2) Act 1975 for the year 1975–76 on the value of any vouchers issued to employees of any body corporate up to an amount of £52 in that year of assessment, on the value of free coal or the amount of any cash payments received in lieu of free coal by miners, on the value not exceeding £52 in that year of assessment of the provision of goods or services provided free or at reduced rates to employees of a body corporate in an employment to which this section applies where those goods or services are of the same kind as those provided to the general public by that body corporate and on an amount not exceeding £52 in that year of assessment paid to any class of persons in receipt of any salary, fees or emoluments payable out of the public revenue in excess of the sum fixed under section 191 of this Act.

(4) In this section 'employment' means an employment such that any emoluments thereof would fall to be assessed under Case I or II of Schedule E and the amount of such emoluments calculated on the basis that they are employments to which Chapter II of Part VIII of this Act applies and without any deduction being made under section 189 of this Act in respect of money expended in


performing the duties thereof or under section 192 of this Act in respect of any fee, contribution or subscription but excluding the amounts in subsection (3) above do not exceed £5,500.

(5) In this section 'body corporate' means any person carrying on a trade, profession or vocation.

(6) In this section 'voucher' has the same meaning as in section 36(3) of the Finance (No. 2) Act 1975."'.—[Mr. Ridley.]

Brought up, and read the First time.

Mr. Ridley: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. George Thomas): With this it may be convenient to take Amendment No. 65 in Clause 35, page 25, line 13, after 'Act', insert:
'and does not include a voucher, stamp or similar document entitling an employee to goods, including raw materials and minerals, not exceeding in the aggregate in each year one working day's production or extraction of such goods by an employee of the same grade working at the place of work, including a mine or quarry, which is such employee's usual place of employment'.

Mr. Ridley: This new clause arises out of debates in Committee on the clauses dealing with benefits in kind when the Government announced, first, that they were in a terrible muddle over the whole question of benefits in kind and, secondly, that they would set up a review to regularise the position.
This new clause seeks to hasten the Government along in that regularisation because it applies for one year only—the year ahead—and it tries to deal out a certain amount of elementary justice on the question of benefits in kind.
It says that all employees may obtain a benefit in kind or a voucher in lieu to the value of £1 a week for the tax year following—that is, all employees earning up to £5,500 a year. I do not believe that that is the whole answer to the problem, but at least it sets it fair as between all classes of people in trades of all different kinds.
The two points that I remember from our debates in Committee and on which I should like to elaborate are, first, the extraordinary unfairness of the basis of valuation of benefits in kind, and, secondly, the extraordinary arbitrariness of deciding those able to obtain them.
I turn to the first point. A seat on the Concorde to Australia might sell at £600, yet if a seat is vacant an airline employee has the benefit in kind worth £600. All national airlines offer virtually free travel—limited perhaps in degree—to their employees if there are spare seats. The same is true of the railways and of other forms of transport. The argument advanced by the Financial Secretary is that the benefit in kind must be valued as to what the employer loses from giving it. The whole basis of Clauses 34 and 35 is that we are considering not what it is worth to the employee to receive the benefit in kind, but what it costs the employer to give it.
When we deal with coal we find the same answer. Miners' free concessionary coal concerns not what it costs the employer; it concerns the benefit the miners receive from having the coal. The kind of statutory justification for free coal for miners is that it may cost the National Coal Board more to dig the coal out which the miner gets as a concession, but once the miner has taken it home, it is an expensive and difficult job to scrape it out of his coal cellar and take it away from him. Therefore, what is the coal worth?
This is a marvellous basis of valuation. I suppose that every company director could argue that as the Rolls-Royce has been bought and is waiting outside the office, it does not cost much more for him to take it for a swan in the park with his secretary. In another instance, as the smoked salmon and champagne have been delivered to the party, if they are not consumed it will be extremely difficult and expensive to make any use of them because the smoked salmon will rot and the champagne will go flat. Therefore no benefit would be derived by anyone because the company had already spent the money.
This argument is so patently ridiculous that it needs examining. Someone working in a post office who presumably gets no benefits in kind—he does not get free stamps for his letters—must agree that a person working for an airline who can get a free trip to the Far East or to South America is immensely fortunate. The subtle Treasury argument that it is the loss to the employer not the gain to the employee that matters will, I fear, fall on


very stony ground in the ears of those who do not receive benefits in kind.
The new clause seeks to limit the value of the benefit in kind to all workers who receive £1 a week. That is the first step towards some form of equity. The second step must be to extend this benefit to everyone. It is not good enough that some groups of workers obtain benefits in kind and others do not. Therefore, if no tangible benefit in kind is provided, the proposal seeks to allow the employer to issue vouchers that will be tax free to the value of £52 a year and it goes on to seek to limit the value of benefits in kind to £52 a year for any one worker.
We have drawn the income limit at £5,500 a year. We did this at a time when the Yorkshire miners were preparing their claim for submission to the Coal Board. We worked out that if they received £100 a week, they would fall foul of the benefit if the income exemption limit were not put at £5,500 a year. This could have meant that they would be disqualified from receiving concessionary coal of any sort. That was far from the thoughts of my hon. and learned Friend the Member for Thanet, West (Mr. Rees-Davies) and myself when we considered this matter, because we do not wish to take away benefits in kind, and it would be out of order to propose it in this new clause. We presume that £5,500 is at about the right level.
We must pursue a little further the matter of concessionary coal. I have read the Bill again and again, and I cannot understand why, if a miner receives a voucher in lieu of concessionary coal it is not taxable. The Financial Secretary murmured about the statutory concession, but my hon. Friends looked up the statutory concession, which makes no mention of vouchers. Nor does there seem to be any extension in the statutory concession to vouchers in any of the clauses which we are discussing.
Therefore, we are of the opinion that, but for this new clause, miners who take vouchers in lieu of concessionary coal will be taxable on the value of those vouchers. The argument that it is impossible to determine the value of the concessionary coal cannot apply in the case of vouchers because vouchers would be encashable for a certain sum of money—they are because they carry a certain sum of money on their face. Therefore, I ask the

Financial Secretary how he will except vouchers in lieu of benefits in kind within the provision of Clause 35 unless he accepts this new Clause.
8.0 p.m.
There is another point on which I am sure the House would like to comment. That is that the motor cars of trade union leaders are not actually taxable at all when use for private use. It is iniquitous that a business man who uses his car half the time for personal and private use, particularly if his income is over £5,000 a year, should be taxed on that part of the use, whereas someone who is not in a profit-making organisation, such as a trade union leader or the organiser of a charity, if he is paid over £5,000, should get free use of a car in a personal capacity.
We cannot in this Bill seek to change the position because it would require an increase in taxation—a proposal which is not in order. But this must be a point to which the Financial Secretary would want to respond, because I am sure he would agree that it would cause considerable alarm and dismay if it became widely known that the taxation law affecting trade union officials in relation to benefits in kind is far slacker—indeed, is non-existent—in respect of a motorcar or something like that. Mr. Scargill's famous motor car, about which we heard, can be driven by Mr. Scargill six days a week on his own private business and the union will pay the whole of that cost, and it is not taxable in his hands.
It is this sort of social injustice and these inequalities and inequities which make the public anti-trade union. If there is resentment—which I find all over the country—about the way in which the trade unions behave on occasion, the least that the Government can do is to hold the ring fairly between citizens as regards taxation on matters such as this. I hope that we shall hear a firm pledge by the Financial Secretary that this particularly obnoxious loophole will be stopped up at the earliest possible opportunity in the next Finance Bill.
We know that there is to be a review of benefits in kind. It would be impossible to make them all taxable. It is absurd to think that the baker baking bread will not take a few loaves home for himself, or that the miner mining


coal should not have a few sacks of coal for his own personal consumption. People of many other trades and professions who have traditionally and rightly taken some of their own production should be encouraged to continue to do so. But the situation becomes totally intolerable if it includes expensive benefits such as air fares to faraway places, and it is equally intolerable if it excludes large numbers of people whose particular product is not suitable for treating as a benefit in kind because they, in times of high taxation, have much worse a deal than they would have if taxation were at a lower level.
I hope that the Financial Secretary will say something about his principles in this matter. The botched-up clauses in the Bill are in response to the spite of the Secretary of State for Social Services in relation to BUPA. They will not solve the problem. We need a thorough review of the whole question of benefits in kind. This is the appropriate moment to call upon the Financial Secretary either to accept the new clause or to say on which principles he would prefer to have the situation based. All that the Government have done by opening up this subject of benefits in kind in this Bill is to alert all those who follow our debates to the extremely inequitable basis of the whole situation at present.

Mr. Peter Rees: I congratulate my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) on introducing this extremely important new clause. I rise to speak both to the new clause and to Amendment No. 65.
I hope that without immodesty I can claim some small part in ensuring that this issue has reached the light of day, because in Committee when we debated what is now Clause 35, it occurred to me, on reading the definition of "voucher" in subsection (4), that it might well catch, inadvertently perhaps, some bill, some wayleave, some ticket, given to a miner or his dependant for his free coal.
Having the privilege to represent a seat which has three very important coal mines, I thought it wrong that, perhaps inadvertently, the Government should sweep into the fiscal net the undoubted benefits which those who work underground receive from their labours. For myself, I do not grudge them their free

coal. That is a matter which perhaps we should debate and will debate. But I wonder whether free coal should stand on its own.
I believe that this raises the general question of how far a worker is entitled to derive a tangible benefit from his day's work. Why should not the worker who produces biscuits take home a free tin of biscuits? Nearer home, in my constituency, there is a factory which makes bathing caps. Why should not the girls who work in that factory take home a free bathing can? Or a hot water bottle? —[Interruption.] Or whisky—indeed, why not? For all I know, those who work in distilleries north of the Tweed may well be given a free bottle of whisky. How it is treated fiscally I do not know, but I suspect that on general principles it is treated as a benefit in kind and assessed on that basis.
What strikes me as quite wrong is that by a side wind, inadvertently—or perhaps by design—the Government should bring free coal into charge for tax. I should like to know what Mr. Gormley and Mr. Scargill and the leaders of the National Union of Mineworkers thought about this clause. Were they consulted? It will generate a great deal of ill will in the mining industry if they find that, without proper debate, free coal is now to be subject to tax.
I appreciate that there are general considerations on both sides. There are some who are not involved in the mining industry, and do not have the good fortune to enjoy this particular kind of benefit, who say that it should be subject to tax and subject to exactly the same principles which perhaps subject them to tax in regard to their—dare I say it—free whisky, free biscuits or free bathing caps. There are others who say "No, free coal, like any other product, represents the tangible fruits of a man's working day and we should not grudge him a modest return in this way".
These are important principles which we should canvass. In Committee I did not feel it right that we should pass this clause without exploring this matter. After a certain amount of pressure the Financial Secretary, with a certain reluctance, rose to inform us that there was, in fact, an extra-statutory concession which specifically exempted miners from tax in this regard. In fact, when one looked at it a


little more closely, one found that the extra-statutory concession applies only where cash is paid to a miner in lieu of his free coal. That may be a permissible extension of the principle. I do not know.
But what I find very unattractive—I hope that other hon. Members will find it unattractive—is that we should be asked to enact a clause which will sweep into the fiscal net a range of benefits in kind represented by a voucher but that at the moment we are doing so we should be told blandly by the Government Front Bench that this will not touch a certain range of benefits because there is an extra-statutory concession already operating which will continue to operate.
I have always been against extra-statutory concessions. The Government of the day should, so far as possible, try to clothe these concessions, if they feel there is some principle which justifies them, in statutory language. If we are to have long, closely fought debates, on the details of Clause 35, if the Financial Secretary feels that this clause might or should not extend to free coal or vouchers for free coal, that provision should be specifically written into the Bill. I am sure that that principle will command acceptance on both sides of the House, because it is not a partisan point. That is the way in which we should conduct our legislative business. I hope that I carry the right hon. Member for Down. South (Mr. Powell) with me on that.
The Financial Secretary, perhaps conscious of the ambivalence of his position, said that if a provision could be produced on Report that would resolve this unattractive dilemma he would consider it with great favour. I searched the Notice Paper in vain for any new clause or amendment from the Government to deal with that problem, and because I did not find one I ventured to put down my modest Amendment No. 65. But, with his customary assiduity, my hon. Friend the Member for Cirencester and Tewkesbury had produced a yet more elaborate and comprehensive clause. The basis of both the clause and my amendment is the idea "free coal, yes, but let us extend this principle".
The amendment perhaps goes a little further than my hon. Friend would entirely approve, in that I have tried to extend the principle to everyone. Those who

work with hand or eye should be entitled to receive free of tax the equivalent of one day's production of their labours. That must be an approach that will command acceptance on both sides of the House—at least, I hope that it will.
I have no doubt that the Financial Secretary will say, as Financial Secretaries are prone to say, that my amendment is riddled with obscurities and ambiguities, and that he cannot accept it as it stands. That is a criticism that one faces with as much equanimity as one can. But the Government must on Report declare themselves on the general principle. Do they or do they not say that the principle of free coal is good? If so, do they say that it should be extended to all branches of industry, including service industries? If they do, one appreciates the pressures on them, largely self-induced, this summer, but perhaps we shall be disposed to hold our hands and wait for the next Finance Bill, whether in October or April.
I want the Government to tell us whether certain perquisites, such as free coal in the mining industry, are to be sacrosanct. I appreciate that that perquisite pleases certain of my constituents, but not all. Are certain perquisites, such as inflation-proof pensions of civil servants, to be free of wealth tax? The same principle will run through our debates when we debate the wealth tax.
I hope that I shall be forgiven if I make some sharply partisan points. I do not have the Government's approach to fringe benefits—if we may use that phrase, shot through with a certain hypocrisy and humbug. Directors who choose to take out their business associates are to be taxed on the "free" dinner that they receive, although I am not aware that it is free, because it is usually paid for by their companies. That is evidently an unacceptable benefit, which must be assessed on the director concerned. If the TUC entertains Mr. Shelepin, that may be a benefit, but it is not a benefit in kind which is to be assessed on Mr. Len Murray and his colleagues. What distinguishes between those two benefits?
As my hon. Friend, with his customary grasp of these matters, has said, Mr. Scargill may drive a Volvo tax-free. I do not begrudge him his Volvo. I do not share his politics or his economic or social aspirations. But I am sure that


by the standards by which he operates he does a good job for the members of his branch of the National Union of Mineworkers. However, many directors and many employers do an equally good job for their companies, and in doing it they have a motor car. It may be that on occasions, tired after their day's work, perhaps entertaining visiting potentates, they drive home in their company car. They are to be assessed on that benefit. But when Mr. Scargill, tired after his day's labours at Scarborough, drives home, he is apparently not to be taxed on that benefit.
Which way are we to have it? Is everybody to be taxed, or nobody? Let us have a clear principle established by the Government. We have put down the amendments to give the Government a chance to rationalise a difficult and complex area of law.
I have been a little harsh in the words that I have used. I have accused the Government Front Bench of hypocrisy and humbug. Here is a chance for the Government to show themselves in their true colours as those who believe in equality of sacrifice and an equal share of the fiscal burden. In that light, I commend my modest amendment, in the hope that we shall at last have a little equity and plain speaking in a rather difficult area.

8.15 p.m.

Mr. Nott: I had hoped that one or two of my hon. Friends might have joined my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) in trying to draw out the Financial Secretary on this probing new clause.
I remind the House that the debate became necessary because of the Financial Secretary's extraordinary performance in Committee, where my hon. Friends did not dispute the Government's right to impose taxation on vouchers. Indeed, we accepted the essential fairness of the principle that, with certain reasonable exceptions, it was right to tax goods in the same way as money and that there was no reason why one man should receive an income of £1,000 taxed and another a benefit in kind of a smiliar amount untaxed.
Having begun our debates in an entirely co-operative and helpful frame of mind, as always, we were driven as a result of the debate, either through the incompetence of the Minister's reply or because of the facts, into believing that there was gross discrimination in the tax system in favour of two specific sections of the community who have been mentioned in this debate.
The White Paper on counter-inflation policy completely surrounds a memorandum of instructions sent by the TUC to the Government. The White Paper is based on that memorandum. Therefore, we are not surprised to find in our tax system the situation described by my hon. Friends, who gave the example of Mr. Scargill. None of us has anything against Mr. Scargill as an individual. As my hon. Friend said, he represents his members to the best of his ability. The Financial Secretary laughs. Perhaps he has something against Mr. Scargill, but we accept that Mr. Scargill is doing a good job on behalf of his members.
We find it consistent with the Government's counter-inflation White Paper that Mr. Scargill should be entitled to drive around in his Volvo without being taxed on it. It happens to be a well-chosen model. By chance, I drive the same model myself. Mr. Scargill drives around in his Volvo and apparently, wherever he goes in it, whether on pleasure or business, he is not taxed on it as a benefit in kind, whereas, as far as I am aware, those in virtually every other section of the community, except those who work for charities and trade unions, have to pay tax on similar use of a motor car.
Therefore, we want to know why the Government should allow this discrimination in favour of trade union officials to continue. Why should other people have to pay tax and not the trade union official? What is so special about him?
This brought us to the question of miners' coal. None of us have anything against miners. My hon. and learned Friend the Member for Dover and Deal has many miners in his constituency, and I am sure that at the next election they will be voting unanimously for him. Likewise, I represent miners in my constituency and I would like to know whether, as coal miners are entitled to an extra-statutory concession on their


coal, my tin miners are entitled to extra-statutory tin. Just as the coal miners can exchange their coal for cash, so my miners, with a little more difficulty, could exchange their tin for cash.
We got into a considerable muddle with the Financial Secretary during the Committee stage. He kept leaping to his feet to help out, but every time he spoke our confusion grew and his own confusion grew even deeper.

Mr. Alec Woodall: Does not the hon. Gentleman know that miners cannot exchange their concessionary coal for cash? The coal is only for a miner's domestic use and cannot be exchanged. Under the agreement by which a miner receives the coal, he cannot even give it away.

Mr. Nott: I am delighted that the hon. Member has at last participated in our debates. We were trying to draw him out during the Committee stage so that he could tell us of the practices in coal-mining areas. He was silent throughout, even though we tempted him to provide us with that sort of information. Perhaps he can tell us whether a miner can give coal to his grandmother. Would a grandmother be a dependant? No doubt the Financial Secretary will be able to help us.
The clause clearly says that vouchers received in exchange for goods are taxable, so why are miners' vouchers not taxable? We were told that the reason was that the coal they received was an extra-statutory concession, as if some Treasury Minister or official was able by fiat to overrule statutes. We are here debating the Finance Bill while somebody, somewhere in the Whitehall system, is dealing out extra-statutory concessions to his friends, saying "You are a miner. Never mind about the law. You can have your coal without bearing any tax upon it." We hope that the Financial Secretary will be able to elucidate these matters in a way he was not capable of doing in Standing Committee.
It may be said that the points we are raising are irrelevant because the P11D limit starts at £5,000 a year and benefits in kind are taxed only where income exceeds that figure.
My hon. Friend the Member for Cirencester and Tewkesbury, with great circumspection, put a figure of £5,500 in the

new clause because at the time we were expecting a miners' claim for £5,000 a year. I do not know whether the Chairman of the National Coal Board, Sir Derek Ezra, is a miner for the purposes of receiving free coal. As chairman of a nationalised undertaking, he is paid very much more than £5,000 a year, but presumably, if members of the NCB are entitled to vouchers which they can exchange for coal, once a week on pay day Sir Derek receives a similar voucher and theoretically is entitled to go into the cellars of the National Coal Board, grab his free sacks, load them into his Rolls-Royce, if that is the sort of car provided for him, and take them home.
There may be members of the National Coal Board who are above the P11D limit and technically are able to receive a voucher which they could exchange for coal, so do not let it be said that this is an irrelevant debate.
We realise that if the new clause were accepted it would involve a considerable cost because it would effectively give a tax-free benefit of perhaps £52 a year to every employee in the country. We do not imagine that in these stringent times the Government would wish to make available that amount of tax-free benefit to the community generally.
This is a probing clause, but I am sure that my hon. Friend the Member for Cirencester and Tewkesbury will wish to question the Financial Secretary closely after he has replied. We hope he will make clear to us that there is no discrimination in favour of, for example, Mr. Scargill and his car or the miner and his coal.
I am sure that the Financial Secretary did not express the situation very clearly in Committee. He now has the opportunity to put the record straight. For the first time in our lives, we can say that we would like to hear from the hon. Member for Bolsover (Mr. Skinner). He represents a mining constituency, and we would like to hear from him and from the hon. Member for Hemsworth (Mr. Woodall) as well.

Mr. Robert Sheldon: I am not sure why, of all the many debates we have had in Committee, we now find ourselves with a carbon copy of these debates. I made it quite clear then that this clause


had no effect on the extra-statutory concession to miners. There must be some obsession of a peculiar kind that some hon. Members have about miners and the mining industry that forces them to return to these matters again and again. It shows a concern well in excess of what the present position warrants, but it is not for me to select the particular subjects to which the Opposition want to return. Their choice simply demonstrates the matters that they believe to be of the greatest importance.
8.30 p.m.
The purpose of the new clause is to enable everyone earning less than £5,500 a year to enjoy a concession of an average of £1 a week benefit from their employers, tax free for 1975–76. I would have thought that a party which was concerned about the public sector borrowing requirement would not have made this subject one of its first priorities for changes in legislation. The way in which the Conservatives want to give this benefit to such people is by a cash voucher issued to employees under the terms of Clause 36. The benefit would be provided in the form of goods or services which the employer provides for the general public. It would be available to all, and payments to public servants would be in excess of their fixed expense allowances. The kernel of the clause is that it exempts entirely the miners' coal allowance in cash and kind and seeks to provide what the Conservatives consider to be this unique benefit for the rest of the community. In so doing the Conservatives have sought to draw attention to what they believe is an anomaly.
Perhaps I can go into the history of the concession. It dates from the war years when at a critical period in our history we were extraordinarily dependent upon output from the mines. Some hon. Members, for example, instead of joining the Armed Forces were allotted places in the mines to produce coal, so important was the production of coal. The situation therefore arose in which a concession was considered to be in the national interest, and it was given.
In the way in which these extra-statutory concessions arise, it has continued from then on. It is not the only such concession. Luncheon vouchers are not dissimilar. They have a very long his-

tory. They were an extra-statutory concession which has tended to cling on. We are therefore saying that those who take the vouchers will be subject to tax in the way we discussed in Standing Committee.
I had better clear up one misconception which was based on what was said in Standing Committee. I indicated then that our proposals had no bearing on the extra-statutory concession. I stated that repeatedly, and eventually, seeking to adopt an emollient approach, I said that if there were any question of the legislation appearing to challenge the extra-statutory concession on coal, I would ensure that it was made quite clear that this was not the intention.
I have carried out that undertaking. I am assured that the concession is not affected. The hon. and learned Member for Dover and Deal (Mr. Rees) will doubtless be delighted at that news and will pass it on to his constituents. I gave the reasons in Committee for the way in which the concession arose and the way it has continued over a succeeding number of Governments. I was, however, uncertain on one aspect, and this I have sought to clarify. I did not then have the records from pits throughout the country. I suspected that there might be an odd pit here or there which arranged its affairs differently from the others. I understand, however, that there is no practice of issuing miners with vouchers which can be exchanged for coal. There was the possibility that one pit somewhere might do so, but I understand that this is not the case. Since the clause deals with the exchange of vouchers for coal I would have thought that that was the clearest indication I could give that the hon. and learned Member's constituents would not be affected. I am sure he will warmly welcome this news.

Mr. Peter Rees: I am obliged for that reassuring piece of news, but the Minister has not applied himself to the point I raised. It is not a question whether this clause may affect an extra-statutory concession but how the extra statutory concession may affect this clause or the general principles of tax laws. Would the hon. Gentleman explain to the House why it is beyond his wit and that of the parliamentary draftsmen and the distinguished Department which the hon.


Gentleman heads to clothe the extra-statutory concession with statutory force? We quite understand what he is saying. It will be very reassuring and I shall be very happy to repeat his reassurance this week-end. But since the principle is so crystal clear and easy to comprehend, I would like to know why, after this period of time, if the hon. Gentleman is embarking on this review of provisions relating to the extra-statutory benefit, he cannot clothe it with statutory form so that everyone can see that it is part of the law of the land.

Mr. Sheldon: I am very pleased by, and the whole House will welcome, the hon. Gentleman's concern for his miner constituents. As to why it has not been possible to clothe extra-statutory concessions in statutory form, he must look at a number of Governments in the past in this connection and that of luncheon vouchers. At least I am able to offer him one assurance, that no previous Government would have been able to offer him had he made this same point to them—that there is in progress a review of the whole matter of benefits in kind. I shall come later to the way in which that is to operate.

Mr. Nott: is this a convenient moment to ask the Financial Secretary a question? He said there were no vouchers issued to miners, but can he give us details of what happens when coal is delivered? Presumably the miner must have a piece of paper or something indicating his entitlement to a certain amount of coal, and a lorry must go round delivering coal to miners in exchange for something. A point was made in Committee about what the clause speaks of—
any voucher, stamp or similar document …
It was on this point that we were seeking to draw the hon. Gentleman. What is meant by those words "similar document". I am talking here of a legal definition. I am not trying to deny the miner his coal, but surely there must be a piece of paper which must be a "similar document" as defined by the clause.

Mr. Sheldon: I have gone into the question of how deliveries are made. One can see various ways in which deliveries can be made on a regular basis, knowing full well the entitlement of each miner.

There are no such vouchers operating in this way. I am assured that this is not the way in which these regular deliveries are made, and because of that they do not come within this clause.
As to the way that it is done, hon. Gentlemen are perfectly at liberty to undertake an investigation of a number of matters outside the clause. I am only saying that for the purposes of this clause, which is concerned with vouchers, there are no vouchers or similar documents as outlined in this clause involved, so that the point does not come within the province of the clause. If hon. Gentlemen want to pursue their interest in the mining industry, the way in which miners are paid and operate and how they work for their living, there are many opportunities open to them to conduct their investigation in a number of ways. But I suggest that this clause is not the vehicle for such an expression.

Mr. Cope: The hon. Gentleman has said that a review is going on, which I am sure we all welcome. Will he, in the course of it, consider seeking to put the concession on coal in statutory form if that is to be continued? That might at least put it into the list as an extra-statutory concession, because at present the concession on coal, as opposed to cash in lieu, is not in the list of Inland Revenue statutory concessions.

Mr. James Dempsey: May I ask my hon. Friend, if all these benefits are to be looked at, whether we should not look at the benefits which farmers get from the production of the fields? The farmer does not buy potatoes, milk or vegetables. All these are part of his remuneration. I hope that that, too, would be looked at as a benefit.

Mr. Sheldon: I am grateful to my hon. Friend. The review of benefits in kind will be wide ranging.
Before I finish with the problems of the miners, which have so beset the debate on Report and in Committee, I should like to mention Mr. Scargill. Neither the hon. Member for St. Ives (Mr. Nott) nor the hon. and learned Member for Dover and Deal begrudged Mr. Scargill his car or the way in which he operates. I was pleased at that. I am concerned that the review of benefits in kind should


take place. The hon. and learned Member for Dover and Deal should know that trade unions are not trading bodies and do not come under these provisions. Therefore I failed to understand the question which was asked.
I can give one or two pointers about the way in which the benefits in kind review will operate. Benefits in kind are increasingly given by employers. Employers make concessions to their employees by means of benefits in kind. As a result of the review we shall bring legislation to the House. The Opposition will be able to examine it and our suggestions of what should be done.
No Government could accept this clause. I hope that it will not receive the endorsement of the House.

Mr. Ridley: We have achieved one major improvement in that the Financial Secretary has done his homework. He came to the House with a well researched brief. He has obviously been in the pit districts. I was delighted that his answer to the debate was much better than the botched-up job he made in Committee. Although this is a minor by-product of the Report stage, it is valuable.
I was disappointed that the Financial Secretary failed to deal with the cars of those in non-trading bodies who receive over £5,000 a year. He failed to say whether the review of benefits in kind would take that point into account. He seemed to be acutely embarrassed by the problem of trade union leaders not being taxed on the benefits they receive by way of cars. He was right when he said that we did not begrudge Mr. Scargill his car. We do not begrudge anyone a car. Only traffic wardens do that.
The point made by the Opposition is that the tax implications should be dealt with. We would be strictly out of order if we did not concentrate on the tax implications. But the fact that, for instance, the director of Oxfam—I do not mean him personally—or the secretary-general of a large trade union should receive a tax advantage from his benefit in kind which the business man or the manager does not have is clearly an anomaly which we want the Financial Secretary to remedy. I am delighted to see it recognised that that is a fair

point. I am glad to see that the Chief Secretary agrees.
8.45 p.m.
To turn to the question of coal and other concessions which workers receive, the fact that in the extra-statutory concessions list there is described cash in lieu of coal seems on the face of it to deny what the Financial Secretary said about no pit in the land giving cash in lieu of coal. Why, then, is there an extra-statutory concession in favour of cash in lieu of coal if no cash in lieu of coal is given? That is the first unsolved riddle.
The second and more major unsolved riddle is this. If there is an extra-statutory concession which is on the extra-statute book—if there is such a thing—and Parliament legislates as it seeks to do in Clause 34, why does not the Bill overrule the extra-statutory concession? It surely must. The very fact that the concession is not statutory weakens it, and the fact that this is a later rather than an earlier statute must mean that this statute will apply. I cannot see how it will not apply. If at any stage a pit issues vouchers in lieu of coal or cash in lieu of coal, I am still of the opinion that the Bill will overrule the extra-statutory concession.
My hon. and learned Friend the Member for Dover and Deal (Mr. Rees), who has already gone to Dover to break the glad tidings, has left too soon because the doubt remains, and the Financial Secretary, although he sought to clear it up, has not succeeded. One of the most valuable contributions to the debate came from the hon. Member for Coatbridge and Airdrie (Mr. Dempsey), who with his usual and expected rapier-like intellect pointed out that farmers get extra-statutory cabbages and milk. I think we could find many similar examples. We are urging upon the Government that all these concessions should be regularised, that everyone should be limited as to what he may take out extra-statutorily and that everyone should have some rights.
I remember going round a champagne firm in Epernay where I was told that each worker was allowed to drink a certain amount of wine. I was astonished to find that the ration was eight bottles a day. Apparently that extra-statutory concession had become rather expensive, and the number of bottles had been reduced to two a day. It was said that at


that level the lack of absenteeism and the devotion to duty were such that it paid to make this free concession.
Again, however, there will always be hon. Gentlemen like the hon. Member for Coatbridge and Airdrie who will say "Why should they get eight bottles of champagne a day when I get nothing?" I do not know what Members of Parliament get as "perks"—perhaps an extra White Paper a week or an Adjournment debate specially arranged on a Friday afternoon. We certainly deserve something after the announcement which the Leader of the House made today. Some perquisite or concession for Members of Parliament will, I am sure, be on the way, and I hope that we shall hear about it when the review comes forward.
The feeling behind the clause is that all these concessions should be taken into account and should be made fair for all. We should then have a clear idea of what the law is and be able to review the whole position on the principles which have been outlined.
As the Financial Secretary has met many of the points which have been made by my hon. Friends and has shown a willingness to understand the principle which underlies our contributions, I think that it would be wise of me to seek to withdraw the clause. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 9

STOCK APPRECIATION

'Where any person has obtained relief under section 52 of this Act, the value of his trading stock at the beginning of the period of account which begins on the day following that as at which the closing stock value for the purposes of the said section 52 was determined shall be increased by the amount claimed in the case of—

(a) an individual under paragraph 1(2)(b) of Schedule 9 to this Act,
(b) a company under paragraph 6(2)(b) of Schedule 9 to this Act,
and the provisions of Schedule 9 of this Act shall have effect for the purposes of this section as they have to section 52.'.—[Mr. Hordern.]

Brought up, and read the First time.

Mr. Hordern: I beg to move, That the clause be read a Second time.
The purpose of the clause is to extend stock appreciation relief for a further year. I recognise that the Government have acted to relieve companies from the effects of inflation on their stocks. Admittedly they have done so rather late in the day, but there is no doubt that the assistance has been of great benefit to companies and has been much appreciated by them.
We understand that the cost of the relief contained within Clause 52 and Schedule 9 is approximately £3,895 million over two years. The cost will be approximately £1,300 million this year, part of that amount covering 1973–74 but the greater part of it—namely, £1,125 million—covering 1974–75. The cost of the relief next year will be about £2,600 million. Of course, that depends on whether the companies will claim the full amount next year or whether some of it will be transferred for later on.
We need to know from the Government—I hope that the Chief Secretary will answer this point—what progress the Sandilands Committee is making. Have the Government received its report? If not, when do they expect to receive it? When do the Government expect the consultations to be concluded which will follow consideration of the report? When can we expect to know the Government's proposals following the report? It is very important that the House should know what is happening as regards the Sandilands Report.
With all due respect to the Chief Secretary, it is not enough for him to leave the matter in the way in which it was left on Second Reading, when he said.
I give the assurance that it is extremely unlikely, now that the basis of stock valuation for tax purposes has been altered, that it will ever be possible to go back to cost or market value."—[Official Report, 8th May 1975; Vol. 891, c. 1747.]
It is unlikely but it is not, unfortunately, a bankable assurance or an accountable assurance, as the Chief Secretary will recognise. Nor can firms make any real calculations about future cash flow with only an assurance that some form of stock relief will be available. Companies'


accountants and auditors will continue to insist that a tax equalisation account is provided. That will mean that funds which might have been used for investment or plain survival will be frozen.
The greatest indictment of all is that so much money has to be returned to companies in this way. The return of this money is not the result of any sudden generosity on the part of the Government; it is merely the result of inflation. The vast sum of neatly £3,800 million represents the Government's failure to control inflation. It represents in a real way the cost of the social contract and the Government's total failure to curtail their own expenditure. In fact we are confronted by increased expenditure as a result of the additional subsidies which were introduced last July and at the same time the reduction in the rate of VAT to win the last election. The price of inflation that industry was expected to pay is now being borne by the taxpayer.
There is another consequence to be considered. The greater part of the relief, amounting to £2,600 million, will come next year and may be offset against this year's profits. This seems to show how much the Government expect inflation to rise next year. The level of profits on which stock appreciation is based will be very low. We can see how the Government view the expected rise in inflation.
It is becoming increasingly difficult this year for companies to earn real profits as opposed to stock profits. The evidence is there for all to see. The Financial Times this morning contains an article by Sam Brittan, prominently placed on the front page, to the effect that it is now official thinking in the Treasury that unemployment will rise to 1½ million by the middle of next year. I hope that the Chief Secretary will say something about the present situation. In a week's time we shall have the June unemployment figures, and they may be over 1 million. That shows the state of confidence in industry. If there were confidence in industry, there would not now be so many unemployed, nor would the prospects ahead for employment be so much worse than they are now.
The latest monthly economic assessment shows a fall of 8 per cent. in manu-

facturing investment in the first quarter of the year. The Department of Trade's Investment Intentions Survey carried out in May showed a forecast fall in the volume of manufacturing investment of 15 per cent. I do not recall such a marked loss of confidence in manufacturing investment. The Chief Secretary may be able to correct my impression—I hope he will be able to do so—that I recall no time when the prospects for manufacturing investment were so poor. The situation appears to be rapidly deteriorating. The survey appeared only recently, but the Financial Statement, in April, forecast a fall in manufacturing investment of about 10 per cent. That is a further sign of deterioration.
Let us take another indicator, which is the best growth record the Government can boast—namely, the record of bankruptcies. In 1974 there were 5,716 bankruptcies, 45 per cent. more than in 1973. In the first quarter of this year there were 1,938 bankruptcies, nearly 50 per cent. more than in the same quarter last year. How much longer can this go on? One has only to talk to any businessman to see how much firms are cutting back, wherever they can, on investment, stocks and employment. The limit of £6, regarded by the TUC as a minimum, will make things worse.
The Chief Secretary recognises that it is not much use killing the golden goose of industry, which his hon. Friends below the Gangway would like to do. But the goose has long since lost its glitter. It has become lean and scrawny, increasingly dependent on the Government for handouts, for these stock appreciations provisions and all the rest. Meanwhile, in another part of the farmyard lurks the fat, prognathous hog of Government expenditure, seizing all resources that it can get and producing nothing in return. That is the position. We can see it from the financial flow statistics and also horn empirical evidence that already exists.
If we work on the principle that nobody can borrow unless somebody is prepared to lend, it means that the financial deficit in the public sector of £7,571 million for this year has to be met by a surplus in the private sector from persons and companies and from the surplus arising overseas from our balance of payments deficit. Recently that balance of payments deficit has been


improving, and that is an encouraging sign. We may now be running a current balance of payments deficit of about £1,200 million a year, or even less. That in turn means that there has to be a correspondingly large surplus in the private sector for individuals and companies to finance the deficit in the public sector.
9.0 p.m.
If there is an anticipated deficit in the public sector for this year of about £7,500 million—this must be the very minimum estimate, because the Supplementary Estimates we saw last week were just short of £2,000 million—and if the balance of payments deficit for this year is a great improvement on that of last year and amounts only to approximately £1,200 million, apart from any residual items that there might be, this must mean that a surplus has to be earned by the private sector of some £6,300 million to balance the equation. Therefore, the private sector—whether individouals or companies—would have to save, rather than spend on consumption or on physical assets, on a scale which has not been dreamt of before. It means that individuals will have to accept less in real terms and that there will be very little room for any form of investment in industry.
This is a most lop-sided and ludicrous position. One end of the seesaw is permanently occupied by the oppressive dead weight of Government expenditure while the other end, the private sector, is up in the air desperately trying to make contact with the ground. This is what is so depressing about the White Paper which adds to public expenditure this year but does nothing to ease the position of industry.
Let us suppose that there is a recovery of world trade next year. How will industry take advantage of that unless it is able to invest at that time, and preferably able to invest before? However, when we get to that stage industry will perforce have to be competing for resources with the Government. The consequence will be that interest rates will be forced up or, as we have seen in times past, there will be an increase in the money supply which will start the whole weary cycle once more. That is how I foresee the situation developing.
There is only one way to put the situation right, and that is to cut public expenditure now.

Mr. Ken Weetch: The hon. Gentleman was talking about the level of unemployment a few moments ago. Now he is talking about recession and public expenditure. Does he agree that if there are substantial cuts in public expenditure, the recession in the level of unemployment will increase?

Mr. Hordern: The hon. Member for Ipswich (Mr. Weetch) is absolutely wrong. When I spoke about the level of unemployment I was referring to it as a sign of the lack of confidence of business and industry. Indeed, I think that the growth of unemployment is inevitable in any case. I do not shrink from the proposition—I never have done—that a cut in public expenditure necessarily means an increase in the level of unemployment. If public expenditure is not cut now, the resulting increase in unemployment will inevitably be far higher than it is at present. That is the point that must be grasped.

Mr. Dempsey: The Secretary of State for Defence recently announced that we shall cut defence expenditure by £2,150 million by 1980. I understand that the Conservative Party opposed that cut in public expenditure. What public expenditure does the hon. Gentleman want to cut? Will he spell out in detail every service that he would cut in the interests of pursuing this policy?

Mr. Hordern: I am grateful to the hon. Member, and I shall respond immediately to what he has said. For a start, I would not have continued the element of food subsidies that the Government propose. I would not have kept down the otherwise inevitable increase in council rents that would have occurred. Equally, I would have made quite sure that there would have been no proposals for nationalisation of North Sea oil or the Community Land Bill. The Community Land Bill involves 14,000 civil servants. These are totally unnecessary forms of expenditure which are bound to increase demand on the money supply.
Those elements alone will cause great difficulty for the Government, who are already far exceeding any possibility of


their public expenditure being met by revenue or genuine borrowing. The dilemma in which the Government will find themselves in the next few months is worse than anything that can be appreciated now.
It is all very well to talk about a balance, which the Government try to portray, as if next year's public expenditure can be cut by £1,100 million quite easily and rationally. But there will be a strain on industry and business for at least another year of a kind which has not been experienced at any stage since the war. This is inevitable because of the increase in public expenditure which has occurred already and which is proposed far in advance of anything we have so far experienced.
The Supplementary Estimates were an indication, but there are other ways in which public expenditure will inevitably grow far beyond the present forecasts of the Government. It can grow only at the expense of the private sector and of any prospect of the private sector to recover.
I commend the new clause to my right hon. and hon. Friends. I hope that after listening to the Chief Secretary they will feel able to support me, possibly in a Division.

Mr. Joel Barnett: I hope that you, Mr. Deputy Speaker, will not mind if I deal with the new clause. The hon. Member for Horsham and Crawley (Mr. Hordern) seemed to go a little wide of the subject. I hope that he has not prejudiced his chance of speaking on these matters on Monday or Tuesday of next week.
In case the hon. Gentleman had not appreciated it, the new clause turns stock relief, which at present is a deferral of the tax relief, into a permanent relief. The hon. Gentleman did not pay too much attention to that. Therefore, perhaps I should say at the outset that I find that proposition unacceptable. I hope that the House will also find it unacceptable.
I should explain that the new clause is unacceptable on the interim or any other form of stock relief because of the rough and ready nature of the relief. Stock appreciation need not necessarily be due to inflation. It could be due to

a substantial increase in the volume of stock. Nevertheless, this stock relief would still be available. I find it unacceptable to allow that as a permanent relief.
For example, if a company had £100,000 worth of relief, a year or two years later went out of business or went into a different form of business, sold off and took the profit on stock for which it had received stock relief, under the new clause that profit would be wholly tax-free. I cannot believe that would be considered right as a form of stock relief.
The hon. Gentleman began by paying not too churlish a tribute—I will take it as a tribute—to the stock relief which gives a substantial amount of tax relief to individual traders, partnerships and small companies with stocks below £25,000 which previously did not get the relief in the first year. I think he recognises, as most people in industry do, that this is a very substantial form of tax relief. He made the point, perfectly reasonably, that what tends to happen in accountancy terms is that in the balance sheet of the firm concerned the relief appears in the tax equalisation account. There is nothing unusual about that. It happens in exactly the same way in the case of capital allowances, where the first year allowance is now 100 per cent. Most companies do not write off 100 per cent. in the first year, and the difference is usually put to a tax equalisation account. That is the normal procedure and the recommendation of the Institute of Chartered Accountants. That is what happens.
The hon. Gentleman said that that means that the funds are frozen, but he completely overlooked the fact that all that is frozen is the account on the balance sheet and that the cash flow is helped, which is what this measure of relief is intended to do. The fact that it was in a tax equalisation account would not alter anything, unless—and here one comes to the nub of the argument—the form of tax relief given in this interim measure were to be removed while inflation was continuing.

Mr. Hordern: That is the point. What is important is not the fact that the money is in a tax equalisation account but that no company can know with


certainty what the future position will be. Therefore the point of the new clause is to establish some form of permanency, though not particularly in this form. I appreciate the Chief Secretary's difficulty in relation to the Sandilands Report, but all companies considering their future investment are in great difficulties when they do not know what form of further provision there is to be.

Mr. Barnett: I was coming to that point exactly, because I am very much aware of the concern on the part of accountants and their advisers. What the hon. Gentleman did not tell the House is that the only way his new clause deals with it is by giving the relief as a permanent fact. As I have indicated, I hope that he would not be prepared to go that far, and that he is putting forward a form of probing new clause to try to ascertain what would happen afterwards.
As the hon. Gentleman fairly pointed out, I have on at least two occasions indicated to the House that clearly one could not claw back that relief at the present time—it would not be acceptable—or in the foreseeable future while inflation continues. He quoted me quite fairly as saying that one cannot get back to the basis of stock valuation that has always previously applied for tax purposes, and, indeed, for accountancy purposes—that is to say, the lower of cost or market value. If one went back to that, clearly the tax relief would be clawed back, and that would be disastrous. On a number of occasions I gave the best assurance that was possible until we got to a form of more permanent stock appreciation relief. I said that it is extremely unlikely that the system will be altered or that we could possibly go back to the old system of the lower of cost or market value, and that, so long as inflation persists, it is inevitable that some form of stock relief will be permanent.
That is nothing like the same thing as the hon. Gentleman is proposing in his new clause. As I have indicated, what he is proposing is not just a form of stock relief. It is that the relief itself would be permanent, and would be given to companies even though they had realised the stock and made a profit on it. Under his proposed new clause that profit—perhaps a very substantial profit—

would be made wholly tax-free. I do not think that that can be acceptable.
We are now considering the Sandilands Committee's Report, and I give the hon. Gentleman the assurance that we hope to come back in the Finance Bill next year with a permanent form of stock appreciation relief based on what the Sandilands Committee recommends. I cannot say whether it will be precisely like that, because at present we are considering the report. But we have given a commitment previously that we shall take account of Sandilands in devising a new and more permanent form of stock appreciation relief. I hope that the hon. Gentleman accepts that that is the way to deal with the matter rather than the way that he proposes.
I hope that I shall be forgiven if I do not take up any of the wider matters which the hon. Gentleman raised about the balance of payments, employment and the rest of it.
As for manufacturing investment, I share the hon. Gentleman's concern. Certainly it is not as I would like it. As he said and, indeed, as I said in answer to Question last Thursday, the reason for the decline in manufacturing investment is not the shortage of availability of finance. The reason is the confidence factor and all the other factors which we are trying to deal with now. However, this clause would not be the answer to the problem. I hope that the hon. Gentleman will feel able to withdraw it.

9.15 p.m.

Mr. Cope: The Chief Secretary said that the effect of this clause would be to turn the stock appreciation relief based on Clause 52 and Schedule 9 into a permanent relief. I believe that I know what he means. But he does not mean permanent in the sense that this relief would go on for years and years and would apply next year as it has this year or as it did last year. It is not permanent in that sense. What the right hon. Gentleman means is that the clause would ensure that the relief was not clawed back under any circumstances.
In the past the right hon. Gentleman has given—and he has repeated today—the terms of the undertaking which he gave that, in general this relief would not be clawed back. However, we know from the terms of his undertaking and


we understand generally that not everyone is protected by that undertaking. Unless this clause or something like it is passed, some companies, individuals or partnerships are likely to find their relief clawed back, at least in part. At the moment, we do not know and they do not know who these individuals are. That is one reason why everyone is having to put the money into tax equalisation accounts. Another reason why they are having to do it is that, unless this clause is passed, no one can rely on the fact that they will not have to pay it back in due course and that it will not be collected on some subsequent occasion. It is this uncertainty which the clause seeks to end.
I do not care much for the drafting of the clause, but I have no wish to criticise it on that score. I understand some of the reasons which lie behind the way in which it has been drafted.
Being a member of the same profession as the Chief Secretary, I understand what he means when he talks about the balance sheet and the tax equalisation account and the fact that in at least a cash flow sense the money is not frozen in the sense that it cannot be used. But it remains a potential debt on every company's balance sheet, and it will turn into an actual debt in some balance sheets. This is where the uncertainty lies for all companies, and it is an even greater uncertainty for some companies, we know not which. But, as the Chief Secretary has been prepared to give and to repeat his undertaking, it is logical at least to accept the principle of the clause, even though I do not expect the right hon. Gentleman to accept it as it is drafted.
The Chief Secretary referred to the Sandilands Report. I understand that it is not easy to implement whatever the Sandilands Committee has reported and to frame it in legislation for insertion into this Bill.
However, the Chief Secretary has said that there will be legislation next year in the Finance Bill on this score. I do not suppose anyone knows exactly what form that legislation will take, but it will somehow continue this kind of relief—this was in the Chief Secretary's undertaking—although not necessarily in the sense of being applied to stock alone

or even to stock at all. It may be in a more general form—perhaps on the lines of inflation accounting generally rather than being related to any specific asset or assets. Nevertheless, this sort of relief will continue.
I do not understand how it can possibly go on to cover anyone, who has been covered by this relief to precisely the same extent. However, as it is drafted some people will benefit mote than others from any recommendations the Sandilands Committee may make. It is important that this relief, rough and ready as it is which is being given for the second year by the Bill, should remain permanent.

Mr. Hordern: Will my hon. Friend not agree that if there is no continuation of this relief and in so far as there is no continuation of it or, indeed, any alteration of it, the impact of such a change is bound to be very severe on industry and on business? If there is any reduction in the flow of funds towards the private sector because of the size of the public sector, the strain upon the private sector will be even greater than it was before. That is the sense which lies behind the new clause.

Mr. Cope: I accept what my hon. Friend says but I do not accept that it is at all likely that there will be no extension of this relief in any form. I hope that this relief, as such, will not have to continue for a third year. I hope that we shall have a more permanent arrangement. I should like this relief to be settled so that we can say "That is it. You have had the relief for this year. We shall not try to claw it back." The Government have more or less said this. They have said to most companies "We shall not try to claw it back. We shall draw the line on this relief and then we shall start afresh with the new Sandilands relief, whatever it may be".
For that reason I support the principle behind the new clause.

Mr. Powell: There was what I think was an important ambiguity in a phrase used by the Chief Secretary which goes to the heart of this debate and which leads me to conclude that whatever may be its deficiencies, the new clause before the House is correct in principle. The


phrase used by the Chief Secretary was "as long as inflation persists". The right hon. Gentleman said that as long as inflation persists some such relief in this form or some other form must go on.
There is embodied in that expression, if he will forgive me saying so, a common misconception about inflation, namely, the notion of inflation as some thing which is static and not dynamic. If the Chief Secretary means as long as each year there is a continuing depreciation in the value of money, it goes without saying that some such relief as this must be carried forward.
However, if there is a cut-off and no further inflation from a given point of time, something still has to be done about the régime which was introduced by the concession last year and in the current year, because that régime was based upon the acceptance that the stock appreciation was not a real appreciation but a fictitious one. It remains a fictitious appreciation as a matter of fact, whether or not dynamic inflation continues in 1976–77 and in subsequent years.
I take it that the new clause fixes in the statute—we can come back to this, and we must come back to this, next year—the fact that this House recognises as fictitious and not as real the stock appreciation which has taken place in this and in the previous financial year. I believe that that ought to be recognised.

Mr. Joel Barnett: The right hon. Gentleman may be under a misapprehension. As I indicated, in the case of a company that is either in business only for a year or stops stocking a particular product or any products at all and its stock declines to nil, under this clause and those new clauses now before the House any profit realised on that stock would then not be liable to tax.

Mr. Powell: Of course the same implication is present in principle in the concession itself, in the whole nature of the concession, because it is an acceptance that the monetary enhancement in valuation is fictitious and not real. That cannot be conceded generally and denied in a specific case.
Of course, the object of valuing stock at the beginning and the end of an accounting period is to ascertain whether real appreciation has taken place, whether

that stock has become relatively more valuable during that period in comparison with everything else, and therefore, whether a real profit has been made, a real enhancement of wealth, by the owners of the stock. But that is the interpretation which is rejected by the régime which was introduced last year, and I believe it is the Chief Secretary who has not appreciated what is the necessity for some such declaration as is embodied in the new clause.

Mr. Cecil Parkinson: We have had debates on this subject or on variations of this theme on a number of occasions. The Chief Secretary's reply is almost always the same. It is that the relief is rough and ready. We accept that. He has convinced us of that. The reply is that if anything is done of the kind that we suggest, anyone who runs his business down or goes out of business will get a benefit and that the relief was never intended to benefit such people. I am glad to see the Chief Secretary nodding, because I am not parodying his remarks. But we see that the essence of this relief was that it was meant to help continuing businesses.

Mr. Joel Barnett: That is right.

Mr. Parkinson: In that case, perhaps I may give the Chief Secretary an example of the ludicrous distortions that this particular relief will cause for continuing businesses.
There is one way in which continuing businesses can continue to obtain and hold the relief. That is to make sure that their stock at the end of the year is the same as their stock at the beginning. If it is, they are preserving the relief they have had. Any run-down of stock will result in claw-back. That is precisely the sort of nonsensical by-product that the continuation of current policy will produce.
I declare an interest in that I am connected with companies which have obtained a benefit. When one goes to meetings one finds that the discussion is "Now we must make sure that at the end of the year we are well stocked up so that we do not lose the relief." That is very sensible on the part of the companies but it is commercial nonsense, because what the companies are saying is "We must continue to have a lot of


money tied up in stock, because if we do not we shall lose the tax relief."
That is a further example of the sort of ever more involved situation that the Government have achieved by their various measures since they came to power. First they boosted the rate of corporation tax. They said "There are too many profits. Companies are making too much money. That is where the money will come from to finance our activities." Then the Chief Secretary, once he had got used to the glories of office, suddenly started to remember his commercial background and to realise that a lot of those profits which the Chancellor said would be available to finance his gross overspending were stock profits which needed to be retained in the companies to finance stock.
What we see in the July measures is an attempt by the Chancellor to reverse a bad decision. The history of this Chancellor's term of office is that he does something in one Budget which is wrong, he refuses to admit it and then he introduces a very complicated measure in the next Budget to try to compensate for the damage which his earlier mistake has caused. He is never prepared to admit a mistake or reverse it. We therefore have nonsensical ideas. The Government put up taxes too high, they overspend, inflation is generated as a result of what the Government do and damage starts to be done. The Government then introduce a paraphernalia of measures—stock appreciation relief, Industry Acts, and capital allowances which are fantastically generous—to encourage people once again to do things that the other part of Government policies are encouraging them not to do.
9.30 p.m.
In an unguarded moment tonight, the Chief Secretary said that that was absolutely right, that companies were being held back not by shortage of money but by lack of confidence. I am glad to see the right hon. Gentleman nodding his head in agreement. He and his colleagues have done more to destroy confidence than any other group of Treasury Ministers for many years.
The Government have dished out several thousands of millions of pounds by way of relief for companies which have stocks. They have said that com-

panies which are overstocked deserve relief. But overstocked companies are not always the most efficient. The taxes have been taken from the profitable companies and relief has been given to the overstocked companies. But the only way in which the companies which are given the relief can keep it is to remain overstocked. The Government tell them "If you once start to run down your stocks, if you want to start to go liquid, to put yourselves in a position to invest, we shall claw back the relief." Companies have the money, but they cannot invest it because they know that it is not theirs long-term.
The Chief Secretary said that the Government would tackle the problem on a long-term basis, but companies have cash at present. They are saying that they dare not tie it up in machinery. It is silly for them to tie it up in stock, but they receive tax relief for doing the nonsensical thing and therefore they find it better to continue to be overstocked and not realise their cash. So we go on and on.
The Chief Secretary says that if the clause were accepted companies that went out of business would benefit. But what the clause would do is to help continuing businesses, which are the ones we are concerned about. If a company goes out of business it keeps the relief on its stock, but if the assets are distributed it picks up the tab in additional capital gains tax. Nobody will close down his business and walk away with the relief in his pocket, because at the end of the day if the assets are distributed—certainly in the case of companies—the shareholder will receive more than he would otherwise have received and he will pay capital gains tax on that additional sum.
Therefore, it is not true that in a business which is closing down the relief would be lost for ever and the Revenue would lose a great deal of money. There would be additional capital gains tax, and quite a large measure of the additional cash retained would be clawed back.
We say to the Chief Secretary "Please stop thinking about blocking loopholes and people going out of business to make money. Please think about the effect of the clause on continuing businesses." We think that stock appreciation was a


rough-and-ready, profligate measure. It had to be overdone, because the Chancellor went in for over-kill in his first Budget and has been trying to make it up to industry ever since. The small benefits that might become available to people running down their businesses or going out of business are nothing compared with the injection of confidence that acceptance of the clause would give to business.

Mr. David Howell: This is not the first time this year we have discussed stock relief. Many of us who are involved in these debates are beginning to feel that we have been over this ground almost too often, but we still lack the clarity and reassurance that the new clause seeks from the Chief Secretary. Each time we have debated stock relief over the last six months it has been against a background of the situation in industry getting progressively worse. Each time the situation slides a bit more while the Chief Secretary is reassuring us in an almost paternal way. It is rather like holding an umbrella over a man who is drowning and reassuring him that at least it is not raining on his head.
We have the forecast from the Treasury of unemployment reaching between 1½ and 2 million. This is the gloomiest official forecast we have had so far, but since our last debate on stock relief we have also had forecasts from the Department of Industry showing some of the most disastrous falls in industrial investment trends ever recorded. There is a 15 per cent. fall for manufacturing investment and a 10 per cent. fall for the distribution industry's investment. These figures are far worse than even the gloomiest pessimist had predicted.
All this time the Chief Secretary is telling us that everything is all right and that stock appreciation measures have produced massive relief and assured the cash position of firms. In one way that is true, but it is a falsely-based truth, if that is not too Irish an expression.
Has the Chief Secretary received the Sandilands Report? How long is he going to keep it? The whole House is getting a little worried about the tendency of the Government to sit on reports. It seems from earlier events this afternoon that they tend to sit on them for a rather long time. If the report is very big, the Chief Secretary will look a little taller

by sitting on it, but this is a serious matter about which industry is deeply concerned and we want to know how long the Chief Secretary is going to keep the report.
Will this relief be clawed back or not? What will happen afterwards? We have had assurances from the Chief Secretary that it is unlikely that the situation will go back to what it was before, and the Minister of State, though in a way that slightly unnerved me, said earlier that it was merely temporary. We have had queries from people in industry who want to know whether it is temporary or permanent and how they can regard funds put aside that might be clawed back.
One example of the problems that are caused is given in a letter from a major company which says:
The November Budget first introduced tax relief on stock appreciation. At that time, we calculated our relief at approximately £686,000. We assumed on the basis of the Chancellor's statement that we could plan on utilising the tax relief for at least a few years, and make our investment plans accordingly. On 15th April, we received quite a shock. Tax relief on stock appreciation was to continue, but the relief will be based on the difference in stocks over a two-year period and the cumulative profits over that same period … our stocks rose during 1974 by £1,707,000. During 1975 we exerted a great deal of management time and energy in controlling the levels of our stocks and succeeded in reducing them by approximately £1 million. At the end of 1975, after two years, our stocks therefore were only £714,000 above the base, and it is on this figure that our tax relief for 1975 is computed. As 10 per cent. of our cumulative trading profits exceeds the increase in our stocks (£714,000), we get no tax relief in 1975. … Thus, when we pay our tax bill next January, we will have to give back all the relief we received last year, and get no additional relief this year.
That is an example of what happened over the two-year period. However, it is also an example of what many firms fear will happen in the future.
Perhaps these funds can be held in cash flow for the time being, but who will invest that kind of money until he is sure where the future lies? Can the money be tied up in real fixed investment now with such a doubt as to whether it will be clawed back in the future? That is the thinking behind the new clause. The wording may not be perfect but it is essential that we get this matter clear, because until it is made clear money will remain available in cash


but it will not be available for investment. That is the missing element in the present situation.
It is all very well for the Chief Secretary to say that because of the stock appreciation relief the financial position of industry is improving, and that is literally so in money terms.

Mr. Joel Barnett: The hon. Member has made an important point. He said that the money would not be available for investment if the companies reduced their stock. If a company makes a £700,000 reduction in stock and then buys £700,000 worth of investment, it will enjoy £700,000 worth of tax relief on the investment.

Mr. Howell: Certainly it would, and I have described how such companies have managed to cut down stocks. I was just coming on to one of the reasons why firms are cutting down stocks and striving desperately to find new ways of making do on less. That is a reflection of the present financial position of companies. It may look better, but it does so only because they have cut back on investment and have dismissed employees, which explains the rising trend of unemployment. They have cut down on stocks, even with the appreciation tax relief. There is some evidence that firms are using their substantial rights issues to pay off debts and that they are using internal cash more efficiently in order to try and make do in the present tight situation.
That is the position now. It is not as though firms have been put in a stronger position in which they can weather the storm. As soon as investment opportunities pick up again, they will immediately run into further difficulties. The corporate sector will run into a deficit and it will need further funds and savings. That is where the relief, which was an essential element of the argument advanced by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), comes in. As the corporate sector recovers, as we hope it will in due course, it will immediately need an enormous increase in cash, and there are nothing like the necessary resources available at present.
The corporate sector will look for that cash and for savings from the private sector, but I fear that those savings and

that cash will have been gulped up by the enormous and still increasing public sector borrowing requirement. That is our fear about public spending. One Labour Member asked why we were so worried about public spending and why we believed that it should be cut now. We are worried because when the recovery comes and the corporate sector begins to look for funds, it will find that it has been crowded out by the public sector which is gulping up private savings.
The Chief Secretary may say that if it is financing its deficit and raising the savings, that will not be very inflationary. I believe that it will be inflationary but for other reasons. But whether it is or not, the effect on the private and corporate sector will be to crowd out investment that is needed to re-create job opportunities and to restore investment and employment. That is why we believe that the present rate of inflation is the main cause of unemployment. Accelerating inflation causes unemployment.
Unless the Chief Secretary and the Chancellor are able to reduce this year's public sector borrowing requirement—they have shown no signs in any of their measures that they intend to operate in that direction—the position will arise in which British companies will be starved of funds because those funds will have been absorbed by the public sector.

9.45 p.m.

Mr. Lawson: Does my hon. Friend accept that if it should happen that the corporate sector is able to put some of those funds into an expanding corporate sector, it will mean that the Government are no longer able to sell gilt-edged in the way They have done, so that the problem of financing the vast financial borowing requirement in a non-inflationary manner will be totally impossible?

Mr. Howell: My hon. Friend puts it very clearly. It is Hobson's choice. Either the Government succeed in financing it, in which case the corporate sector will be starved and unemployment will rise, or they do not succeed in doing so, in which case there will be accelerated inflation, the extension of the corporate sector will be prevented and unemployment will rise. Therefore, unless the Government can get a grip on public sector borrowing by other means, they will be in a desperate situation.
Although it is not immediately apparent, unless we are able to cut public expenditure this year and reduce the public sector borrowing requirement long before the £6 limit begins to have any effect on pay settlements in the public sector, the Chief Secretary and the Chancellor will be moving to the position that whichever way they turn and whatever they do will greatly increase the level of unemployment. I suspect that that is the rationale behind the latest Treasury prediction that unemployment will rise to 1½ million next year. That may be far from the point of stock appreciation, but it is not all that far because here we are concerned with getting something back into industry, and these are funds which can be used for investment.
We have had words, semi-words, ambiguities and every other kind of reassurance from the Chief Secretary but we have not yet had a firm undertaking or an indication that stock appreciation relief will remain on the statute book, that there will be no clawing back and that the funds can be used to create jobs for tomorrow. Unless we have that assurance, I advise my hon. Friends to press the new clause to a Division.

Mr. Hordern: I thought the Chief Secretary's reply was very disappointing. I and my hon. Friends who intervened have pressed him for the date of the Government's announcement. All he has said is that the report is to be produced for the Budget next year. I do not know whether there is to be an earlier Budget, in November, but if we are to wait until next April, that is an exceedingly long time, far too long for companies to wait for the Government's announcement. Here funds are to be frozen in a tax equalisation account, and no one will know whether all of them, or what part of them will be available or for what purpose in succeeding years. This is an intolerable position.
As I tried to point out to the House earlier and as my hon. Friend the Member for Guildford (Mr. Howell) has said, there is an enormous strain on the companies sector at the moment which is being exacerbated the whole time by the increase in public expenditure. Goodness knows, we have doubts enough about the reality of the Government's own estimates on the future growth of public

expenditure, and those doubts have been confirmed by the Supplementary Estimates which appeared only a few days ago for a further £2,000 million. We are increasingly in doubt about the growing size of the borrowing requirement. Therefore, every penny that companies are able to save in stock appreciation relief measures is absolutely essential.

Mr. Parkinson: Would my hon. Friend not agree that a measure from which one can obtain benefit only by doing something which is uncommercial, keeping one's stocks higher than they need be for any commercial purpose, which means that one can have money available only if one continues to be overstocked, must have a large question mark over it even in the minds of Treasury Ministers?

Mr. Hordern: It is extraordinary—and this applies to other forms of taxation, as well; but we are concentrating on stock appreciation. Of course, companies more and more regulate their activities by trying to save tax—and not at all in their own commercial interests—for themselves or their shareholders. That is going on the whole time.
If the new clause is not passed, companies which are unable to keep the relief will have difficulty in expanding when world trade expands. Companies will face difficulties as a result of the increase in public expenditure. Although the trade balance has improved as a result of the efforts of traders, companies will be prevented from expanding later. These are important considerations. However, I hope that the position will improve. Unless the Government announce further measures to reduce public expenditure before the end of the year, companies will not be able to expand.
We are all concerned about the size of of the borrowing requirement. There will be a revival of world trade about next April which will result in considerable competition for funds. That will affect the rate of interest and will result in a vast expansion of the money supply. The Government will cave in. More money will be produced. The Government will be concerned about unemployment. Forecasts suggest that unemployment might rise to between 1½ million and 2 million. In that case the Government will be faced with a difficult situation. As a result of the competition for


resources there will be a further large expansion of the money supply, which will lead once more to another cycle of inflation in 18 months.

Mr. R. B. Cant: I should like to assist the hon. Gentleman in his minor filibuster. I agree with what he says about the dangers of the enlarged public sector borrowing requirement. Is he possibly trying to persuade the Chancellor—we know that he will not succeed—to do something disastrous for British business? With a great deal of financial dexterity the Chancellor is financing the public sector borrowing requirement. He is under strain as the balance of payments comes nearer in equilibrium. At least we are attracting foreign money. We are showing great skill in selling gilt-edged securities. We can enlarge the money supply, for example, only by the sale of Treasury bills. As the hon. Gentleman referred to factors stretching into 1976, including the recovery of world trade, will he not encourage the Chancellor to extend the public borrowing requirement?

Mr. Hordern: rose—

Mr. Speaker: Order. The hon. Member for Stoke-on-Trent, Central (Mr. Cant) began his intervention by referring to a minor filibuster.

Mr. Hordern: I am not quite clear what the hon. Gentleman is inviting me to do. If he would like me to comment further on the public sector borrowing requirement, I will do so. Had he been here earlier he would have heard that the problem arose from the size of the public sector deficit in the current year, which is about £8,000 million. The fact that our trade balance is improving, as the hon. Gentleman said, produces an enormous strain on the personal and private sectors, both on individuals and on companies.
The position is that unless individuals are prepared to curb their spending habits

to a degree not experienced since the war, unless they are prepared to take account of the new measures, there is no way by which the Government's public expenditure can be financed except through the expansion of the money supply. The position will be even more serious for companies, unless they save to the same extent and do not make the necessary manufacturing investment.

That brings me back to the importance of the stock appreciation provisions and of their continuance for at least a further year. We should not have to wait until next April for being told the Government's proposals for stock appreciation. No doubt they will be very complicated proposals which we shall have to study carefully in Committee. Whatever the provisions are, and to the extent that they are less good than the stock appreciation provisions in the Bill, there will be a considerable continuing strain on the financing of industry.

I have referred shortly to the position of the private sector and the difficulties which will arise because of the great increase in public sector expenditure. That will remain with us for a long time to come. It will be extremely difficult to cut down public sector expenditure, but the difficulty will be for companies. Companies will be in a position of continuing doubt. They will not know how much they have to invest—and we are told by the Chief Secretary that this uncertainty will continue until next April. That is not good enough. Companies should know with more certainty where they stand. They will be under considerable pressure from the ever-increasing expenditure in the public sector.

For these reasons, I hope that my hon. Friends will join me in voting for the clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 190, Noes 215.

Division No. 285.]
AYES
[9.58 p.m.


Adley, Robert
Bennett, Sir Frederic (Torbay)
Boyson, Dr Rhodes (Brent)


Alison, Michael
Bennett, Dr Reginald (Fareham)
Brittan, Leon


Amery, Rt Hon Julian
Benyon, W.
Bryan, Sir Paul


Arnold, Tom
Berry, Hon Anthony
Buchanan-Smith, Alick


Atkins, Rt Hon H. (Spelthorne)
Biffen, John
Buck, Antony


Awdry, Daniel
Boscawen, Hon Robert
Bulmer, Esmond


Bain, Mrs Margaret
Bottomley, Peter
Butler, Adam (Bosworth)


Bell, Ronald
Bowden, A. (Brighton, Kemptown)
Carlisle, Mark




Carson, John
Hutchison, Michael Clark
Page, Rt Hon R. Graham (Crosby)


Chalker, Mrs Lynda
Irvine, Bryant Godman (Rye)
Parkinson, Cecil


Channon, Paul
James, David
Percival, Ian


Churchill, W. S.
Johnson Smith, G. (E Grinstead)
Powell, Rt Hon J. Enoch


Clark, Alan (Plymouth, Sutton)
Jones, Arthur (Daventry)
Raison, Timothy


Clark, William (Croydon S)
Jopling, Michael
Rathbone, Tim


Clarke, Kenneth (Rushcliffe)
Kellett-Bowman, Mrs Elaine
Rawlinson, Rt Hon Sir Peter


Clegg, Walter
Kershaw, Anthony
Rees, Peter (Dover &amp; Deal)


Cockcroft, John
Kimball, Marcus
Rees-Davies, W. R.


Cope, John
King, Evelyn (South Dorset)
Reid, George


Cormack, Patrick
King, Tom (Bridgwater)
Renton, Tim (Mid-Sussex)


Corrie, John
Kirk, Peter
Rhys Williams, Sir Brandon


Dean, Paul (N Somerset)
Lamont, Norman
Ridley, Hon Nicholas


Drayson, Burnaby
Lawrence, Ivan
Ridsdale, Julian


Dunlop, John
Lawson, Nigel
Roberts, Wyn (Conway)


Durant, Tony
Lester, Jim (Beeston)
Rossi, Hugh (Hornsey)


Dykes, Hugh
Lewis, Kenneth (Rutland)
Rost, Peter (SE Derbyshire)


Eden, Rt Hon Sir John
Lloyd, Ian
Sainsbury, Tim


Edwards, Nicholas (Pembroke)
Loveridge, John
Shaw, Giles (Pudsey)


Elliott, Sir William
Luce, Richard
Shaw, Michael (Scarborough)


Emery, Peter
MacCormick, Iain
Shepherd, Colin


Evans, Gwynfor (Carmarthen)
McCrindle, Robert
Shersby, Michael


Fairgrieve, Russell
McCusker, H.
Silvester, Fred


Farr, John
MacGregor, John
Sims, Roger


Finsberg, Geoffrey
Macmillan, Rt Hon M. (Farnham)
Sinclair, Sir George


Fisher, Sir Nigel
McNair-Wilson, M. (Newbury)
Skeet, T. H. H.


Fletcher, Alex (Edenburgh N)
Marshall, Michael (Arundel)
Speed, Keith


Fletcher-Cooke, Charles
Marten, Neil
Spence, John


Fookes, Miss Janet
Mates, Michael
Spicer, Jim (W Dorset)


Fowler, Norman (Sutton C'f'd)
Mather, Carol
Spicer, Michael (S Worcester)


Fox, Marcus
Maudling, Rt Hon Reginald
Sproat, Iain


Fry, Peter
Mawby, Ray
Stanbrook, Ivor


Gardiner, George (Reigate)
Maxwell-Hyslop, Robin
Stewart, Donald (Western Isles)


Gardner, Edward (S Fylde)
Mayhew, Patrick
Stewart, Ian (Hitchin)


Gilmour, Rt Hon Ian (Chesham)
Meyer, Sir Anthony
Stokes, John


Gilmour, Sir John (East Fife)
Miller, Hal (Bromsgrove)
Stradling Thomas, J.


Goodhart, Philip
Mills, Peter
Taylor, R. (Croydon NW)


Goodhew, Victor
Miscampbell, Norman
Thomas, Rt Hon P. (Hendon S)


Gow, Ian (Eastbourne)
Moate, Roger
Thompson, George


Gower, Sir Raymond (Barry)
Molyneaux, James
Townsend, Cyril D.


Gray, Hamish
Monro, Hector
Tugendhat, Christopher


Grieve, Percy
Moore, John (Croydon C)
van Straubenzee, W. R.


Griffiths, Eldon
Morgan, Geraint
Viggers, Peter


Grist, Ian
Morgan, Geraint
Walker, Rt Hon P. (Worcester)


Hall-Davis, A. G. F.
Morgan-Giles, Rear-Admiral
Wall, Patrick


Hamilton, Michael (Salisbury)
Morris, Michael (Northampton S)
Watt, Hamish


Hampson, Dr Keith
Morrison, Charles (Devizes)
Weatherill, Bernard


Harrison, Col Sir Harwood (Eye)
Morrison, Hon Peter (Chester)
Whitelaw, Rt Hon William


Hawkins, Paul
Mudd, David
Wilson, Gordon (Dundee E)


Hayhoe, Barney
Neave, Airey
Winterton, Nicholas


Hicks, Robert
Nelson, Anthony
Wood, Rt Hon Richard


Higgins, Terence L.
Neubert, Michael
Young, Sir G. (Ealing, Acton)


Hordern, Peter
Newton, Tony
Younger, Hon George


Howe, Rt Hon Sir Geoffrey
Normanton, Tom



Howell, David (Guildford)
Nott, John
TELLERS FOR THE AYES:


Hunt, John
Oppenheim, Mrs Sally
Mr. Spencer Le Marchant and


Hurd, Douglas
Page, John (Harrow West)
Mr. Michael Roberts.




NOES


Allaun, Frank
Carter-Jones, Lewis
Dunn, James A.


Anderson, Donald
Cartwright, John
Dunnett, Jack


Archer, Peter
Clemitson, Ivor
Dunwoody, Mrs Gwyneth


Armstrong, Ernest
Cocks, Michael (Bristol S)
Eadie, Alex


Ashton, Joe
Cohen, Stanley
Edge, Geoff


Atkins, Ronald (Preston N)
Coleman, Donald
Edwards, Robert (Wolv SE)


Atkinson, Norman
Conlan, Bernard
Ellis, John (Brigg &amp; Scun)


Bagier, Gordon A. T.
Cook, Robin F. (Edin C)
Evane, Ioan (Aberdare)


Barnett, Guy (Greenwich)
Corbett, Robin
Evans, John (Newton)


Barnett, Rt Hon Joel (Heywood)
Crawshaw, Richard
Ewing, Harry (Stirling)


Bates, Alf
Cronin, John
Faulds, Andrew


Bennett, Andrew (Stockport N)
Crosland, Rt Hon Anthony
Fernyhough, Rt Hon E.


Bidwell, Sydney
Cunningham, Dr J. (Whiteh)
Fletcher, Ted (Darlington)


Blenkinsop, Arthur
Daiyell, Tam
Foot, Rt Hon Michael


Boardman, H.
Davidson, Arthur
Ford, Ben


Booth, Albert
Davies, Bryan (Enfield N)
Forrester, John


Bottomley, Peter
Davies, Denzil (Llanelli)
Garrett, W. E. (Wallsend)


Bradley, Tom
Davies, Ifor (Gower)
George, Bruce


Bray, Dr Jeremy
Davis, Clinton (Hackney C)
Gilbert, Dr John


Brown, Hugh D. (Provan)
Dean, Joseph (Leeds West)
Ginsburg, David


Brown, Robert C. (Newcastle W)
Delargy, Hugh
Golding, John


Brown, Ronald (Hackney S)
Dempsey, James
Gould, Bryan


Callaghan, Jim (Middleton &amp; P)
Doig, Peter
Gourlay, Harry


Cant, R. B.
Douglas-Mann, Bruce
Graham, Ted


Carter, Roy
Duffy, A. E. P.
Grant, George (Morpeth)







Grocott, Bruce
McGuire, Michael (Ince)
Ross, Rt Hon W. (Kilmarnock)


Hardy, Peter
Mackenzie, Gregor
Rowlands, Ted


Harper, Joseph
Mackintosh, John P.
Sandelson, Neville


Harrison, Walter (Wakefield)
Madden, Max
Selby, Harry


Hatton, Frank
Magee, Bryan
Shaw, Arnold (Ilford South)


Hayman, Mrs Helene
Marks, Kenneth
Sheldon, Robert (Ashton-u-Lyne)


Healey, Rt Hon Denis
Marquand, David
Short, Rt Hon E. (Newcastle C)


Heffer, Eric S.
Marshall, Dr Edmund (Goole)
Silkin, Rt Hon S. C. (Dulwich)


Hooley, Frank
Marshall, Jim (Leicester S)
Sillars, James


Horam, John
Maynard, Miss Joan
Silverman, Julius


Howell, Denis (B'ham Sm H)
Mellish, Rt Hon Robert
Skinner, Dennis


Huckfield, Les
Mendelson, John
Small, William


Hughes, Rt Hon C (Anglesey)
Mikardo, Ian
Smith, John (N Lanarkshire)


Hughes, Mark (Durham)
Millan, Bruce
Snape, Peter


Hughes, Robert (Aberdeen N)
Miller, Dr M. S. (E Kilbride)
Spearing, Nigel


Hughes, Roy (Newport)
Miller, Mrs. Millie (Ilford N)
Spriggs, Leslie


Hunter, Adam
Mitchell, R. C. (Soton, Itchen)
Stoddart, David


Irvine, Rt Hon Sir A. (Edge Hill)
Molloy, William
Stott, Roger


Jackson, Colin (Brighouse)
Morris, Alfred (Wythenshawe)
Strang, Gavin


Jackson, Miss Margaret (Lincoln)
Morris, Charles R. (Openshaw)
Swain, Thomas


Janner, Greville
Noble, Mike
Taylor, Mrs Ann (Bolton W)


Jay, Rt Hon Douglas
Ogden, Eric
Thomas, Jeffrey (Abertillery)


Jeger, Mrs Lena
O'Malley, Rt Hon Brian
Thomas, Ron (Bristol NW)


Jenkins, Hugh (Putney)
Orbach, Maurice
Tierney, Sydney


Jenkins, Rt Hon Roy (Stechford)
Orme, Rt Hon Stanley
Tinn, James


John, Brynmor
Ovenden, John
Torney, Tom


Johnson, James (Hull West)
Padley, Walter
Tuck, Raphael


Johnson, Walter (Derby S)
Palmer, Arthur
Urwin, T. W.


Jones, Alec (Rhondda)
Park, George
Wainwright, Edwin (Dearne V)


Jones, Barry (East Flint)
Parker, John
Walker, Terry (Kingswood)


Jones, Dan (Burnley)
Parry, Robert
Weetch, Ken


Kaufman, Gerald
Pavitt, Laurie
Wellbeloved, James


Kelley, Richard
Pendry, Tom
White, Frank R. (Bury)


Kilroy-Silk, Robert
Phipps, Dr Colin
White, James (Pollok)


Kinnock, Neil
Prentice, Rt Hon Reg
Willey, Rt Hon Frederick


Lambie, David
Prescott, John
Williams, Alan (Swansea W)


Lamborn, Harry
Price, William (Rugby)
Williams, Alan Lee (Hornch'ch)


Lestor, Miss Joan (Eton &amp; Slough)
Radice, Giles
Williams, W. T. (Warrington)


Lewis, Arthur (Newham H)
Richardson, Miss Jo
Wilson, Alexander (Hamilton)


Lewis, Ron (Carlisle)
Roberts, Albert (Normanton)
Wilson, William (Coventry SE)


Lipton, Marcus
Roberts, Gwilym (Cannock)
Wise, Mrs Audrey


Lomas, Kenneth
Robertson, John (Paisley)
Woodall, Alec


Loyden, Eddie
Roderick, Caerwyn
Woof, Robert


Luard, Evan
Rodgers, George (Chorley)
Young, David (Bolton E)


Lyons, Edward (Bradford W)
Rodgers, William (Stockton)



McCartney, Hugh
Rooker, J. W.
TELLERS FOR THE NOES:


McElhone, Frank
Roper, John
Mr. J. D. Dormand and


MacFarquhar, Roderick
Rose, Paul B.
Mr. James Hamilton.

Question accordingly negatived.

Clause 1

INCREASE OF DUTIES ON SPIRITS, BEER, WINE, BRITISH WINE AND TOBACCO

Mr. Hamish Watt: I beg to move Amendment No. 109 in, page 1 leave out lines 16 to 20.

Mr. Speaker: With this we may consider Amendment No. 114, in Clause 9, page 8, line 7 leave out '£22·0900' and insert '£17·0100'.

Mr. Watt: In calling for the removal of these four lines from the Bill we ask the Chancellor to take heed of the consequences of any attempt to raise the excise duty on whisky at this time.
The Treasury must get out of its head the idea that the Scotch whisky industry is a vast milch cow that can be called on to produce more and more revenue every time the Treasury cares to call on it. Indeed, to milk the industry too often can be counter-productive, and we believe that this is the present position. To ask the industry to pay an extra £5 per proof gallon is asking too much.
It is all very well to say, as no doubt the Minister will, that so far no harm has come to the whisky industry. I acknowledge that that is so. However, there comes a time when the danger bells must be rung, and I want to ring them tonight.
The whisky industry is capital intensive. Vast sums of money are required not only for financing distilleries and for the productive capacity to make the whisky itself, but, unlike virtually any other industry, the whisky industry requires vast sums of money to finance its stocks while they are maturing. Stocks of whisky mature for five to 12 years and a lot of money is required to finance those stocks. With the present high interest rates, the cost of servicing this money is now reaching astronomical proportions and many whisky firms are financially embarrassed. They are heavily dependent on a continuing flow of cash coming in from their current whisky sales. Anything that would in any way interrupt the present healthy sales pattern must be treated with suspicion.
We fear that the proposed increase of £5 per proof gallon might be just suffi-

cient to upset the fine balance between healthy sales and sluggish offtake. It is a well known fact that any increase in duty imposed by the United Kingdom Government is swiftly copied by other Governments. There is a ripple effect with the ripples getting bigger and becoming waves and this may mean that other Governments will increase their duty by even greater amounts than the United Kingdom Government.
No industry has such a fine export record as the Scotch whisky industry, which exports about £300 million worth of its products. There must be very few industries which have such a low import content in their exports. Therefore, the country benefits from the whisky industry.
10.15 p.m.
Why, at a time when the economy of the whole world is so dicey, should anyone want to upset this fine balance and put at risk as profitable a venture as the Scotch whisky industry? I must press for an answer. Why are we seeking to upset this fine balance? Has the Chancellor faced the high risk element of the measurse that he proposes?
The whisky industry already labours under an unfair burden. I refer not only to the present rate of duty, but to the way in which that duty is collected. The duty imposed on whisky must be paid before it leaves the bond. It may be many weeks before that whisky filters through the trade to its ultimate sales outlet and is bought by a customer. The whisky companies, unlike beer companies, have to pay duty which is not readily recoverable for some time and their funds are unnecessarily tied up. I suggest that only a 60-day derogation of the collection of duty would bring the whisky industry into line with the beer industry and its competitors in the wine and cognac industries.
Earlier, I said that some of the distilleries were desperately short of ready money. That is having an adverse effect on job prospects in my constituency and elsewhere in Scotland. However, as Banffshire has fully one-third of the entire malt distilling capacity of Scotland, I am vitally concerned. In an area such as mine there are no other job prospects.


Many people depend on distilleries in the area for their jobs. I know of two projects, due for expansion, which have been abandoned because of tax difficulties. Others have been postponed. For how long, I do not know. At the moment job potential is being lost. Whereas previously overtime was the rule in most distilleries, they are now on flat or short time. Further, many distilleries are having a long close season this summer. Whereas previously they shut down for the shortest possible time, they are now having a long close season sometimes stretching over four, five or six weeks, during which time they are not producing whisky.
The whisky that is being made this year will not be drunk until 1984. Much of it requires that length of time to mature. It is highly unlikely that the present Big Brother will be continuing in office for that length of time. But I want to emphasise that wrong measures taken now can have an adverse effect all that time away. Why do something today which will jeopardise the industry all those years hence? Unlike other industries, production which is lost today cannot be made up next year or the year after. If it is lost now, it is lost for ever. In most other industries—cars washing machines, television sets and other products on which the Chancellor gets his hands—lost sales now can be made up in years to come. That is not so in the whisky industry.
For these reasons, and several more on which I have no time to touch, I move the deletion of these four lines from Clause 1.

Mr. Monro: The hon. Member for Banff (Mr. Watt) moved his amendment in a moderate way and clearly brought out the concern not only of himself, but of all Scottish Members on future employment in Scotland if the Government continue to tax whisky at the level that is proposed. The Minister in his reply should make his case for the action he has taken. Is he able to assess the future so correctly that the point made by the hon. Member for Banff can be negatived? The hon. Member rightly said that this is a long-term production process, and that action taken by the Government today may have very

detrimental effects not only next year but over the next 10 years.
Will the Government be able to tell the House tonight that the steps they have taken will not have the effect that many of us fear and that, despite taxation, consumption will continue to increase as it has in the past, particularly in the export field? It is for the Government to prove their case and to show that they have not gone many steps too far on this occasion.

Mr. Iain MacCormick: Will not the hon. Member agree that there are cases in Argyll already where distilleries have been forced to stop production, and others to cut back, with a serious effect not only on the people employed there, but also on farmers who rely on the draft for feeding their cattle?

Mr. Monro: I have not first-hand information from Argyll, but I am sure that what the hon. Member said is correct. It is not only that the farmers in Argyll are interested in draff. There is also the malting quality barley grown in the Lowlands and elsewhere. The people involved in this may feel the pinch if there is a cut-back in whisky production
The hon. Member for Banff was right to emphasise, as was his hon. Friend the Member for Argyll (Mr. MacCormick) the impact on employment. I speak with no constituency interest at all but purely from the point of view of employment in Scotland in the short and long term. Obviously, if consumption falls, inevitably it will cause unemployment in the industry, and this must be of concern to the Government when unemployment is as high as it is in Scotland at present.
We know that it is over 100,000, and we have been waiting now for many months for the Secretary of State to resign and implement his promise, but he does not do so. While the numbers we are talking about in relation to the distilling industry may be comparatively small, they are particularly important in the areas where whisky distilling is carried on—in the Highlands, in certain parts of West Scotland, and in Galloway, where there is one distillery.
The Government must accept that this is so, just as they will be forced to accept it tomorrow in relation to the imposition


of VAT on boats, aircraft, and so on. The Government are causing unemployment directly by their action. We in Scotland are concerned about this in a whole host of industries that will be affected by the Budget.
It is no use the occupants of the Treasury Bench saying that they have to increase taxation to provide more income for the objectives to which they have given higher priority. This whole issue is one of priorities. Hon. Members can indicate a thousand and one spheres of Government expenditure in which cuts could take place, which would remove the necessity for the high taxation on the things we are talking about in this amendment, and those we shall be talking about when we discuss Schedule 7 tomorrow. We do not want the argument flung back at us that our aim is simply to reduce the amount of taxation. We feel that this could be compensated for by savings in Government expenditure elsewhere. That is why we feel strongly that the Government have to prove their case for the attitude which they adopt to the whisky industry in Scotland, which is so important to our country.

Mrs. Margaret Bain: I wish to support my hon. Friend the Member for Banff (Mr. Watt) and to register my own protest at the very highhanded and inconsiderate way in which the Government are treating the Scotch whisky industry.
The industry is important not only to the Scottish economy—we have recognised that for a long time. At this stage, when the Government pretend to be so concerned about the economic position of the United Kingdom, they should be looking at the rôle which the Scotch whisky industry plays in the British economy. As a major export industry, it brings in a substantial amount to the Exchequer every year, yet the actions of this Government are virtually denying the continuation of this situation.
As the hon. Member for Dumfries (Mr. Monro) said, at a time when in Scotland the unemployment level is running above the 100,000 mark—a level which my party finds totally unacceptable—we ought to be looking at the future of the Scotch whisky industry, bearing in mind that it is not just in the distillation of whisky that we have employment but in the

ancillary industries attached to it. I have to declare a local interest in that many of my constituents are employed in bottling plants, bonded warehouses and distribution services for the Scotch whisky industry.
This Government claim to be interested in what the trade unions say. Perhaps they should look at the suggestion by the General and Municipal Workers' Union which said that far more bottling plants should be built in Scotland so that we could avoid the export of whisky in bulk to the United States of America where it is bottled and, of course, diluted with American water which is not of the same value as the peat water from Scotland which gives Scotch whisky its distinctive flavour.
This Government also recommended that Britain should stay in the Common Market. Despite the promises to the Scotch whisky industry about the value of EEC membership, we find discriminatory taxes being applied by countries such as Italy, which has in operation a very discriminatory VAT rate against Scotch whisky. That is losing us sales which we had previously. We find that extremely distressing. Having spoken to several producers in the Scotch whisky industry, I know that it is causing them concern because Scotch whisky is being priced out of the Italian market.
At the very least, I ask the Government to look again at the point at which duty has to be paid. Our contention is that it should be payable much nearer the time of sale rather than months in advance. The Government's policy results in millions of pounds of capital being tied up on a non-productive basis and, as my hon. Friend the Member for Banff said, a number of projects are being held up because that capital is not readily available for future investment. I know of one case where a bottling plant proposed for West Central Scotland has been deferred for further consideration basically because the money is not available.
I speak as the Member for a constituency where unemployment is causing great concern. I am concerned about the amount of duty being exacted by this Government on Scotch whisky. For the benefit of English Members who may not realise how important this duty is,


let me point out to them that, if English beer paid the same rate of duty as Scotch whisky, a pint of beer would cost 80p. I sometimes wonder whether the Government are not deliberately exercising a policy designed very much to the disbenefit of the people of Scotland.

10.30 p.m.

Sir John Gilmour: I am at present serving on the Standing Committee which is considering the Scottish Development Agency Bill, as a result of which the Government seek to spend between £200 million and £300 million over the next few years trying to get better industrial output in Scotland. In view of that, it seems to me essential that Treasury Ministers' Scottish Office Ministers, and Department of Trade Ministers should get together to ensure that the Government's taxation policies do not do a great disservice to an existing, very profitable industry which is spread throughout the length and breadth of Scotland. There happens to be in my constituency a new bottling store, and the Under-Secretary lives very close to it. Rumour has it that he has a pipeline under the road into his house. I only wish that I lived down hill from it, as he does, because then I might be able to get in on the same racket.
This manufacturing industry, which extends throughout Scotland, is absolutely essential to us. It is an industry which uses indigenous Scottish raw material and does not import very much, although I admit that some distilleries import rather more from overseas than some of us would like. However, basically it is an industry that uses Scottish raw material. It produces something that is known throughout the world for its export capabilities and which is irreplaceable elsewhere, although I know that many people try to imitate it. In Australia I was once shown a bottle of whisky which said "As distilled by His Majesty King George in the cellars of Buckingham Palace". This is what other people seek to do, but those who live in Scotland know that whisky is unique to Scotland and cannot be copied.
We have to produce a quality product which must be matured in casks for 7, 8, 10 or 12 years, particularly if it is going to the United States of America. The taxation policy of the

Treasury should take into account the fact that the raw material purchased and the labour costs that go into producing this whisky involve the industry in a difficult cash flow problem. Therefore, the taxation policy should take into account the difficulties of long-term manufacture and the time that the whisky has to spend in bond before it can be exported.
We know that in difficult times the Government have to raise money by taxation on the home trade. Surely they could take some measures that would be of real benefit to the export trade of this country? It is up to them, with the knowledge that they have of how the industry is financed and how it works, to suggest ways in which help can be given to the industry. If the Government increase prices in the home market, the industry must not be penalised because that would make it impossible for it to produce the whisky to be sold in 7, 8, 10, 12 or 15 years' time.
There is an onus on the Treasury to co-operate with the industry and to take actions that will help to foster and expand the industry. It is useless to pass another Bill to enable £200 million or £300 million to be spent on setting up other industry when something practical can be done to foster and expand a practical, flourishing industry that we already have.

Mr. Esmond Bulmer: I start by declaring an interest in the whisky industry. I should like to ask the Government whether they have taken into account in these increases three important factors. The drink industry is used to being an unpaid tax gatherer and, to an extent, it accepts that. However, like any other company, we have to plan for employment.
The first consideration I ask the Government to demonstrate that they have taken into account is the effect on employment. The Government have introduced measures which demand extra disclosure by companies in order that the Government can better plan their manpower strategies. It would be helpful if the Government, in turn, were to reciprocate and give an indication that if products were taxed on a continuing basis and if increments were based upon that taxation, they would fall within certain parameters.
If the Government arbitrarily increase the tax on any product, the employment in that company or industry can be dramatically prejudiced. I hope that the Government will demonstrate that they have taken into account the employment situation, especially in the rural areas.
Whisky is particularly important, as a number of hon. Members have already said, to the rural areas of Scotland. It is very obvious to those of us who live in rural areas that the countryside has borne disproportionately the effect of inflation, whether it be through rate increases, fuel cost increases or the cost of living generally. Therefore, for the agricultural and the rural community it is important to maintain employment during this very difficult period.
To what extent do the Treasury reflect on the effect of these arbitrary increases on the pattern of competition within industry? Large companies with great export markets can obviously ride these increases. Small companies trying to build up a business in a rural area or in the home market find it much more difficult.
I hope that the Government will indicate in this debate that they have some higher responsibility which they have sought to discharge.

Mr. Gordon Wilson: This is a very important amendment. Earlier speakers have fully recognised that. If whisky exports are taken at the £300 million figure which has been mentioned, we should compare that with the figure for the export of cars—about £730 million a year. This shows that we are dealing with a very important industry in terms of both jobs and export potential. If the House gave as much attention to the whisky industry as it has given—although rightly—to the car industry, we should have been discussing whisky much more frequently in the past. However, because it is one of the consumer industries, it has not received the same degree of attention.
In imposing extra taxes of a steep nature, one has to be very careful that they do not have an adverse effect on industry. I should not have to point out to the Treasury Bench the importance of maintaining exports, not merely now but five to 12 years hence. It is very important to the Government's exporting strategy that they should not take steps

which affect internal demand and which, therefore, will have an effect on exports. As my hon. Friend the Member for Banff (Mr. Watt) pointed out, most of the ingredients in whisky come from domestic suppliers, farmers and other sources—although a considerable amount of barley is imported from the Continent.
There are four different areas of employment which are or could be affected by the Government's increase in duty. This is an integrated industry. It is very strongly rooted and based in Scotland. Although much of it is capital-intensive, which obviously in the actual production of the whisky leads to comparatively few jobs, the industry has a tremendous spread. Most Scottish constituencies have some connection with the whisky industry. In my constituency blending is carried out. That gives to men and women jobs which are very valuable at present.
Perhaps I may analyse the types of jobs which may be at stake. First there are the jobs in the rural areas, in the farming industry which produces some of the raw materials. Again in the rural areas distilling processes are carried out. In many of these areas—Argyll, Banffshire and elsewhere—there is a shortage of alternative industry. This could even affect some of the grain distilleries situated in areas such as Dunbartonshire, perhaps, which are also short of employment prospects at present. In the rural areas the immediate effect of a slow-down in production could lead to short-time working and laying off.
But that is not the end of the story, because there is the transportation from there on, from the distilleries to the bonded warehouses, where the maturing process is carried out. That leads to additional revenue to local authorities by way of rating increases. Then there are the jobs of the transportation workers and of those caring for and maintaining the whisky while in bond. There are even some jobs which come to the Treasury—the excise men.
The next stage is that of bottling, which is quite labour-intensive. Obviously there are many jobs at stake there. It is the sort of thing which should encourage rather than discourage, as these taxation measures may well do.
Even after bottling—or, if that stage is avoided and the whisky is taken by bulk


—we come back into the transport sector. The whisky is taken to the docks, providing jobs for those who work there and for the mercantile marine, transporting the whisky to all the places in the world that take it.
Therefore, the industry is much more important than people give credit for. I ask the Government to think again about what they are doing. It is not just a Scottish question. The industry is part of the Government's exporting strategy. They are to spend tremendous sums to put British Leyland on its feet again. Here they might be taking money from an industry and putting it into difficulties when it is healthy, when they should be trying to encourage its exporting prospects.
There is historical evidence to show that when duties are pushed up at home there are further increases elsewhere, as other Governments take advantage of the increases to push up the cost of spirits. Some of them have home competitors to whisky, and would be delighted to have any pretext for increasing the duty and putting difficulties in the way of the Scotch whisky trade.
Even if the Government feel that they cannot at this stage relax the rate of duty on whisky, they could take steps by an amendment to allow the differential of 60 days on which whisky is charged with duty before it leaves the bond. The whisky companies are placed in the difficuly that, having paid the duty, they have to go through the time-consuming process of releasing the whisky for distribution for wholesale elsewhere.
If the Government are sincerely concerned about the industry, and rashly determined to maintain the increase in duty, they could give that little consolation to the industry. They could acknowledge that the whisky industry is important, and that there may be difficulties because of the intention to increase the duty. They could therefore give the 60-day differential mentioned by my hon. Friend the Member for Banff (Mr. Watt), which would help the industry very much. If the Government took that step they would go some way towards rectifying some of the damage they may well have caused by the decision in the Budget.

The Minister of State, Treasury (Mr. Denzil Davies): I assure hon. Members that the Government are fully apprised of the importance of the Scotch whisky industry to our export trade. The £300 million of which we have heard is of considerable importance. No Treasury Minister who from time to time wakes up in a cold sweat in the middle of the night worrying about the balance of payments will do anything that will jeopardise the balance of payments and the export potential of the Scotch whisky industry. That is one of the major safeguards that the industry has. Its contribution to exports is so considerable that we are, of course, concerned, and we would not introduce measures that would damage it.
But I do not believe that the increase in duty will have the effects that hon. Members seem to fear. I entirely accept that in the very short term an increase in indirect taxes may have a marginal effect on employment. It would be ridiculous for me to say otherwise, but the effect, especially on the whisky industry, will be very short term indeed, partly because of its export potential. I take the point that export markets are intertwined with the home market, but I do not believe that any effects of the increase will be other than short term.
The Government believe that they have the figures right. We do not think that there will be a damaging effect on the whisky industry.

10.45 p.m.

Mr. MacCormick: Is the Government's only reason for taking this action to increase revenue from the tax on whisky? Do they not also take into account other considerations?

Mr. Davies: I will come to that point in a moment. I know the industry is very concerned about the possibility of deferment of duty. The problem here is not one of taxation, but of the credit mechanism in the industry. It takes some time for producers to get paid for their product and they have to pay duty much sooner than that. If we granted the deferment for which the industry is asking, it would mean a drop in revenue of £100 million a year. This would not be a loss because the money would come in during the


following year, but we have been talking tonight about the public sector borrowing requirement and the Government would have to borrow an extra £100 million if it granted the deferment. With the pressure on Government borrowing, we could not relax the position to that extent.

Mrs. Bain: Does the Minister mean that the Government always take the short-term view of any economic measures and do not look to the future as do we in the Scottish National Party? We do not accept the need for cut backs in public expenditure because the Scottish economy is poised for expansion and the Government's measures are cutting back that expansion.

Mr. Davies: We do take a long-term view, which is why we have taken measures to benefit Scotland's industry and economy.
If the duty were indexed in line with the cost of living increases since 1970, it would have to be increased by 120p instead of 64p. The cost of living has gone up much faster than the duty on whisky. We are not putting on a full cost-of-living increase.
We are concerned with priorities, and hon. Members should know that accepting the amendment would cost the Treasury £45 million. Despite the importance of the whisky industry and its contribution to exports, there are other projects and worthy causes on which we could spend £45 million. We do not have this money at the moment anyway because of the need to restrain public expenditure and the public sector borrowing requirement.
Hon. Members have mentioned the £250 million or £300 million which is to be devoted to the Scottish Development Agency. Are they saying that the Government should forgo the £45 million and make cut backs elsewhere? Are we to cut back on agricultural subsidies or on money for investment in industry? This is the choice we have to make. We have to get our priorities right.

Mr. MacCormack: On the island of Islay, in my constituency, there are eight distilleries that contribute probably £6 million or £12 million in duties alone to

the national Exchequer. Government policies will deprive them of half their transport communication with the mainland. What the Minister is saying to the people of Islay must be regarded as absolute balderdash.

Mr. Davies: Scotland, like Wales and parts of the North of England, has deep-seated industrial problems. It needs investment and modernisation in manufacturing industry. If we are to forgo this £45 million it will have to be raised from elsewhere, because the Government are putting money into Scottish industry. In this respect we are getting our priorities right. We are taxing the consumption of less essential goods and we are using that money, in part, to do the things we were elected to do, which is to improve investment and the state of manufacturing industry. Without that Scotland will never prosper. However important the Scotch whisky industry may be, Scotland will not prosper merely from selling whisky to America or anywhere else.
I do not believe that the increase will affect the industry. It is for those who support the amendment to say where that £45 million will come from, if not from the source we have chosen. They have so far failed to do so.

Mr. Watt: It is disappointing that the the Minister should have his priorities so wrong that he is prepared to risk exports of £300 million and more for the sake of getting £45 million. So long as this industry is viable, the £300 million could next year become £345 million and the Government would get their extra money. But that depends on the industry being healthy and viable, and that is in everyone's interests.
The Minister is risking jobs throughout Scotland. The people of Scotland are reaching the stage where they know that their industries will never get justice in this place, and the sooner we get our economy away from here the better.
However, we made our point in the last debate by dividing the House. For that reason, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2

GAMING LICENCE DUTY

Mr. Rees-Davies: I beg to move Amendment No. 1, in page 3, line 30, column 2, leave out '12,000'.

Mr. Deputy Speaker (Sir Myer Galpern): With it we may also take the following amendments:
No. 2, in page 3, leave out line 31. 
No. 3, in page 3, line 31 at end insert—
'Provided that the charge for each table in excess of eight in any premises shall be one half of the charge shown in the third column of the Table above.'
No. 4, in page 4, line 5, at end insert—
'(3) In section 16(2) of the Betting and Gaming Duties Act 1972 (supplementary provisions as to gaming licensing duty) for the definition of "rateable value" there shall be substituted:—
'rateable value' in relation to any hereditaments means (without prejudice to paragraph 1(1) of Schedule 2) the rateable value shown in the valuation list in force on 1st April 1973 in England and Wales and on 15th May 1971 in Scotland"'.

Mr. Rees-Davies: The amendments stand or fall together. The Minister is perhaps in a little difficulty in this debate, one which to some extent I share because it was the former Financial Secretary, now the Minister of Transport, who saw the parties who were affected by the somewhat complex measures with which the amendments deal. It was after that meeting that these matters were discussed in Standing Committee. Unfortunately, at the time that the amendments were to be called, through eventualities which were beyond the control of one of my hon. Friends, they were not moved. Although they were adverted to on Clause 3, they were not fully covered.
That has a certain advantage because it enables us to get across with clarity what is a short but not a wholly easy case to present. As I have been associated with the background to this matter for some time, I am concerned to secure an equitable collection of tax from casinos.
When the tax was introduced it was thought that its yield would be about £1 million. We are happy to say that it yielded £3 million. The Treasury indicated that it would like to ensure a yield of £5 million. I propose to deal with the matter on that basis. Although my

suggestions will cover a wider area than these amendments, I shall be able to show how the Government can achieve their objective, but not quite in the way they propose.
The debate on the 1966 Finance Bill was led by the foremost expert on gambling in the House of Commons. I refer to our much lamented and lost colleague, Iain Macleod. Although I agreed with the line eventually adopted by the Government, the original proposals were wrong. In 1966 the Government changed the basis of the collection of the tax by making a charge on casinos' rateable value. The highest rate charged was over £50,000 while the lowest was under £1,000. According to the table now being considered, the Government have wisely altered that. If the rateable value of the premises does not exceed £1,500 a low rate is charged on each table in the casino. At the highest level, a rateable value of £12,000, the proposed charge for each table is £11,250.
In the 1966 debate it was pointed out that a rateable value was not a satisfactory method of assessment for this form of taxation and that it was necessary to extend the concertina and to widen the bounds of the rateable value. That path is now being followed by the Treasury, which has considerably widened the bounds. Unfortunately it has also imposed an extremely high charge per table on the highest rated casinos to claw in the revenue it needs. A sum in excess of £22,000 per annum per table is self-defeating. It will not be produced.
11 p.m.
At present 12 London gaming clubs with a total of 196 tables are providing £2¼ million revenue. It is proposed that those 12 clubs with the same number of tables should yield £4.410,000—that is to say, over £2 million more. The other clubs in the provinces and elsewhere have to carry none of the increased burden, and some may have a saving.
The assessment assumes that every table is of equivalent value. That is where the lack of expertise in the draftsmanship is shown. In one casino in Shaftesbury Avenue most of the 28 tables have very low stakes which would not yield sufficient profit to pay the very high charge although, the premises being in Shaftesbury Avenue the rateable value is well


in excess of £12,000. It does not follow that in premises with a high rateable value a high charge can be made for additional tables.
It is true that higher charges can be made in areas of some wealth, but where the proposal falls down is that in Shaftesbury Avenue and Tottenham Court Road the stakes are moderate and the casinos would not be able to pay these large sums.
There are likely to be two results. First, the very low stakes will be increased, there will be an undesirable increase in gambling and people will gamble for higher stakes than they wish. Secondly, some of the tables will be withdrawn altogether because the casinos will not be able to make a profit on them. If that happens, the increased yield which the Treasury has in mind from £3 million to £5 million will not be achieved. It will become desirable to have the full complement of tables only in one or two particular casinos.
There are two casinos in the Curzon Street area that have high level gaming. It is true that there are a large number of Arabs in this country and travellers from Japan and overseas, some of whom are high gamblers. Where there are tables at which the limits are extremely high--up to £30,000—and where it is not unknown for people to win or lose in a night in excess of six figures, it is right and proper to charge at least £25,000.
I do not expect a detailed reply from the Minister dealing with the niceties of heavy and excessive gambling. I have had the opportunity of having a long talk with members of the Casino Association and I have from time to time advised them on various aspects—not as an association but as individuals.
The casinos are producing an important yield for the country. I emphasise that it is not just the yield to the Treasury in respect of gambling by foreigners that is important. The tourists are big spenders who in other ways contribute a great deal of money to the general tourist revenue. They represent a small section of wealthy individuals who certainly increase the revenue to the Treasury and to our coffers, quite apart from the gaming in which they take part.
I suggest that these amendments are reasonable and sensible. I do not suggest that in the long term I would not rather have had the opportunity to change them somewhat. I certainly hope that, having been half-converted, and having given this some thought, the Treasury will now give it further thought and come up with a suggestion. If they want £22,000 to become £25,000 for a table they should relate it only to tables where the stakes are above a particular limit.
Having regard to the careful control in this country which is now applied through the admirable efforts of the Gaming Board, the Treasury are now in a position to know, and the Customs and Excise fully know through their inspectors, what are the levels of gaming in each club, and they would be able to achieve real equity, and to see that people who play for higher stakes pay a higher percentage than those on a moderate gamble.
It is right to leave out altogether the top bracket of £12,000, to leave out line 31, for a charge on a table of £11,250, but to provide instead that the charge for each table after the first eight should be one half of the charge shown in the third column. That would enable and encourage them to keep the same number of tables, or even to increase them. Few of them are able to increase them very much, and there is no sign at present of any general overall increase in the money which is to be extracted from those who play in the casinos. There is no longer a boom. Just a few of the foreigners to whom I have adverted play the high game.
It is also important to discourage gambling outside the casinos. At present there is little evidence of illegal gambling on any extensive scale. The introduction of carefully controlled gambling has proved successful in this country and now, with the introduction of the Gaming Board, that is progressing satisfactorily. One does not want to encourage driving it underground. I regret that if there is a reduction in the number of casinos people may try to go elsewhere and capitalise on this.
I invite the Minister to give a sympathetic reply to this matter which has not yet had full and careful consideration.


I hope that the Government will be able to meet this point, watch it carefully over the next year and see whether the arguments put forward tonight are correct. They may well find that the present basis in the Bill might bring a reduction in yield and in the number of tables. That may give an opportunity to consider the suggestion I have made tonight, that they should consider relating the actual charge per table, certainly above a small number, to the stakes.
This is not part of the argument put forward by the Casino Association, but, speaking for myself, I feel that that is the right path to tread. The casinos would not have the advantage of lower taxation—in fact, they would be paying more. The tax would be spread so as to produce an equitable burden. It is hardly equitable for some 80 per cent. or more of the total gambling tax in casinos to be borne by such a small proportion of the total number of casinos.

Mr. Denzil Davies: The hon. and learned Member for Thanet, West (Mr. Rees-Davies), as he intimated at the beginning of his remarks, has the advantage of me. The hon. and learned Gentleman has considerable knowledge and expertise in these matters. I, as a good Welsh methodist, have never been seen inside one of these establishments. I omitted to say when discussing the previous amendment that nor have I touched a drop of Scottish whisky. The Treasury is in good hands this evening.
The hon. and learned Gentleman went into this subject in great detail. Perhaps he will agree that the best course would be for me to deal with the amendments briefly but separately and then at the end to indicate my views.
Amendments No. 1 and 2 would delete from the proposals the highest band of £12,000, for which the annual duty charge is to be £22,500 per table. If the amendment were accepted—but we are not disposed to accept it—the highest rateable value band would be £10,500 and the rate per table in that band would be £17,500. The cost of reducing the duty would be £980,000. That very precise figure is not a Treasury figure. It is a figure put forward by the British Casino Association. The Treasury and the

Revenue see no reason to dissent from that figure. We may not be talking about large sums but we are talking about £1 million at a time of great economic difficulty. I do not believe that at this moment we can give away £1 million in this area when there are so many other priorities.
The hon. and learned Gentleman will also realise that the rates of gaming duty have not changed since 1970. We are not adding an additional impost but adjusting the rates in terms of inflation since 1970. I do not consider that the majority of hon. Members or the majority of the public would consider that to be unfair.

Mr. Rees-Davies: I entirely accept the Minister's figure, but no doubt he will deal with the point that it is based upon the assumption that the same number of tables will be used. If some of the tables are withdrawn because the burden becomes too heavy the £980,000 will not be obtained.

Mr. Davies: On that basis it could be said that there would be a loss, but the figure to which I have referred has been put forward by a trade association and one assumes that it knows its business. Of course, anyone can be wrong on such a matter, but at the moment that is the figure and that is the prognostication.
Amendment No. 3 reduces the charge of duty per table for any table after the eighth in a casino to one-half the flat rate charge proposed in the Bill. The same arguments apply to this amendment. I understand that if we accepted the amendment there would be a loss of revenue of about £1¼ million a year. That figure has been accepted and agreed, I understand, by the British Casino Association.
As regards these amendments, we are talking about £2¼ million. At this moment I do not think we can grant such a concession. I accept, of course, the hon. and learned Gentleman's point that no one can be certain that when indirect taxes are increased the revenue might not fall rather than increase because of the effect of taxation. We shall keep an eye on these matters. However, we do not think that there is a problem. We do not think that there will be a shortfall in revenue. I give the assurance that we shall keep the matter under review. For the moment I do not see


how we can give this concession. The hon. and learned Gentleman will not be surprised to hear me say that we cannot accept the amendment.

Mr. Rees-Davies: I appreciate that at this stage the Government do not feel able to accept the amendment, but I hope they will recognise that there may well be a shortfall as a result of a reduction in the number of tables, and particularly in moderate gaming. If they find that there is such a shortfall I hope that they will rapidly ensure that they get back their yield by bearing in mind what has been said tonight, and by considering putting the tax upon those who can bear it.

Amendment negatived.

Further consideration of the Bill, as amended, adjourned.—[Mr. Joel Barnett.]

Bill, as amended (in the Committee and in the Standing Committee), to be further considered Tomorrow.

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pavitt.]

SPEED LIMIT (WORCESTER)

11.15 p.m.

Mr. Peter Walker: I am grateful to the Under-Secretary of State for coming at this late hour to discuss a topic which is of immense interest to a number of my constituents. I must declare an interest. The village of Fernhill Heath is next to the place where I have my home and farm in my constituency and is obviously used a great deal by my family.
The subject of speed limits in different areas is frequently raised with the Department of the Environment. As a former Secretary of State for the Environment, I am aware of the enormous pressures which are put on the Department to change speed limits, to erect pedestrian crossings, and so on, which the public feel are justified. As Secretary of State I had to reject many of these demands because, on the knowledge available in the Department, it was not genuinely in the interests of the public at large to change certain speed limits, to erect pedestrian crossings, and such

matters. Therefore, I hope that the Under-Secretary appreciates that I would not raise this matter if I did not feel that it was justified and of real importance for the Department to consider carefully.
Fernhill Heath is one and a half miles from the city of Worcester, but, due to the building, development and sprawl of Worcester, could almost be counted now as a suburb of that city.
The stretch of road about which I am concerned lies between Worcester and Ferhill Heath. On leaving the 30 mph limit at the boundary of the city of Worcester one immediately gets into a 70 mph limit under normal conditions—of course, that does not apply at the moment under present regulations—for a distance of 1·3 miles until reaching almost the middle of Fernhill Heath where the limit becomes 40 mph through the rest of the village.
The result is that motorists, having got up speed between the boundary of Worcester and Fernhill Heath, enter and indeed go through half of the village at 70 mph, frequently not lowering their speed through the rest of the village. They then enter another 70 mph limit until they reach the town of Droitwich. In the area between Fernhill Heath and Droitwich it is reasonable to have a speed limit of 70 mph, but not in the area between Worcester and Fernhill Heath.
I should like to describe the 1·3 miles between the 30 mph limit at Worcester and the 40 mph limit in the middle of Fernhill Heath. About 20 yards inside the 30 mph limit in Worcester there is the entrance to one of the city's biggest factories—Metal Castings. Coming out of the city and going towards Fernhill Heath, on the left hand side of the road is a nursery to which large numbers of people go in cars to purchase plants and gardening machinery. It is a lively garden centre.
There are then some houses and a popular public house called "The Raven". There are then more houses. One then comes to Claines Lane, leading to a suburb of Worcester called Claines, an important church and a busy public house. There are then two institutions of the county council, one belonging to the Education Department and the other


to the Stationery Department, both resulting in a great deal of traffic. There is then Morton Avenue and Dilmore Lane which lead to 300 to 400 new houses and flats and the villages of Porters Mill and Ladywood. On that stretch of road, in addition to the features I have described, there are 120 houses. That is one side of the road.
On the other side, which is the least built-up side, there is, first of all, the sports ground of one of Worcester's biggest factories, and a great deal of traffic results from that. There are then allotments, then a garage, and then the road leading out to the headquarters of the county constabulary, after which there are houses. Between Worcester and the Fernhill Heath boundary, taking both sides of the road, there are virtually only two fields which could be described as general open space, so I would argue that, on the make-up of the area, there is every justification for there being a continuation of the speed limit between Worcester and Fernhill Heath itself.
I will give the accident rate for a period of 44 months between the boundary of Worcester and the far boundary of Fernhill Heath, according to the figures I have obtained from the county constabulary. In that stretch of road there have been 65 people injured, 19 of them seriously, and three people killed. The Under-Secretary of State will understand the very considerable emotions aroused in the village when last year, alas, an eight-year-old boy was killed in the village endeavouring to save his younger brother from being killed by a motor vehicle. Obviously an event such as that is heart breaking to the people of the village concerned.
The village itself and the parih council have constantly urged on the county council and the Department of the Environment that there should be a 30 mph speed limit, and that it should stretch from the Worcester boundary through to the village. As a former Minister in the Department of the Environment, I know that the arguments for having a 30 mph speed limit, as opposed to 40 mph, are pretty small and limited, and that they are not very often justified. While I understand the wish of the constituents

to have a 30 mph speed limit, I know from all the facts and figures given in my time that it would be of no great advantage to them compared with a 40 mph speed limit. But the need for a 40 mph speed limit is very considerable.
In the village there are one or two other important features. First, there is a group of flats for old people, which is on the main road itself. Second, a number of the most important facilities of the village are on the far side of the road from the main bulk of the population. This is true of the British Legion, which is very active in that village. It is true of the parish hall, it is true of the school, to which most of the younger children go, and it is true of two of the public houses in the village. Therefore, there is a very considerable crossing of the road by children and by elderly people and, of course, by the rest of the village as a whole. These are features which make this a very important aspect.
When I took this matter up last year with the Department of the Environment, I endeavoured to organise a meeting, which for various reasons did not fully take place. But after that, the then Minister of Transport, now the Secretary of State for Education, wrote to me on 22nd January 1975. He said:
We have now had some more up-to-date accident records for this section of A38 trunk road and, while there is no doubt that they do not support the imposition of a 30 mph speed restriction, as suggested by the Fernhill Heath Action Group, they do suggest that there may be a case for an extension of the present 40 mph restriction through Fernhill Heath for about 800 yards southwards towards Worcester. It will be necessary to consider this in much greater detail and, if an extension seems to be justified, to consult formally interested organisations, publish the proposal etc.
My constituents and the people of Fernhill Heath, while obviously wanting much more than that, were relieved that a very important stretch of road of half a mile, which in their view is very densely populated and active, and forms half the village, should be covered by an extension of the restriction of the sort suggested. They were pleased at this news and presumed that the inquiries would result in a satisfactory proposal.
They were very surprised by what they next heard, indirectly through me, and once again from the then Minister of


Transport. I read again from his letter, dated 5th June 1975:
The results show that this site does not meet our standard criteria for either vehicle speeds or the gravity of the accident records.
In his previous letter, he said specifically that the accident records had made him decide to inquire into this, and, therefore, it seems surprising that he quotes the accident records as a reason for not now doing it.
He went on:
In addition neither the County Highways Committee nor the Chief Constable is prepared to give any backing for an extended restriction.
That surprised the people of Fernhill Heath, because they presumed that the county council, which obviously is democratically elected by people locally, would have supported their submission. Therefore, it is not surprising that they and I had some pretty nasty things to say about the county council's not supporting this submission.
Only today I received a letter from the chairman of the Highways Committee of the county council which is very significant and important. He writes:
The reason the Committee did not give it such support was purely their adherence to the criteria laid down by the Department.
I am sure that the Under-Secretary will agree that it is absurd if the Department, as we know, has criteria for measuring these things, and it then consults a county council only for it just to confirm that those are the criteria, which the Ministry knows in any case. I had assumed that the Department would consult the county council and that the county council would say, "In the circumstances, because there are problems here, despite the criteria we think the speed limit should be extended." But apparently, in this case, the Highways Committee took the view that its sole task was not to give an opinion but to say whether it adhered to the criteria laid down by the Department. I presume from the letter written by the chairman of the Highways Committee that if the matter had been considered on the basis of the committee's opinion about whether it was in favour or against the proposal, its decision and advice might have been somewhat different. But it considered that its job was simply to say whether it was within the Department's criteria.
The parish council, which is very active in the area, wrote to me saying:
We have been asking the Worcestershire County Council over a number of years for this extension but on each occasion we have been told that the criteria for the imposition of such a limit is not met. The Parish Council wonder just how many more people have to be killed or injured on the road, particularly on Rose Bank which is a notorious black spot, before the criteria is met. We feel the 40 mph speed limit ought at least to be extended to the Claines Lane junction but ideally we would like to see it taken to the Worcester City boundary. It is also felt that where there are three lanes of traffic these should be reduced to two lanes.
I assure the Under-Secretary that the village is totally united. It is a fast-expanding village. There is a great deal of new building going on at the moment, and the people feel genuinely, as I do as a former Minister in the Department, that it is absurd to have this speed limit stuck half-way through the village when many of the worst accidents have been on that portion of the road to which the limit does not apply.
I recognise that the Department has gone through the normal procedures, and I assure the hon. Gentleman that local people, people in the city of Worcester, and certainly the local county councillor—so far as I know, none of the other county councillors has been to inspect the area to see what is going on—and everyone else who know what is going on feels there is a need, if not for a 30 m.p.h. limit, if not for imposing a speed limit between Worcester and Fernhill Heath in its entirity, at least for going ahead with the suggestion for an 800 yard extension that was looked at by the former Minister of Transport.
I hope, therefore, that the hon. Gentleman will be able to give careful consideration to this possibility.

11.29 p.m.

The Under-Secretary of State for the Environment (Mr. Ernest Armstrong): I am grateful to the right hon. Member for Worcester (Mr. Walker) for the very fair way in which he has raised what must be indeed a matter that causes very high feeling among his constituents in the village to which he has referred. When there has been an accident, particularly to a young child, I know how people feel, and the letter that the right hon. Gentleman read from the parish council reminded me of a similar incident in my


constituency. I know just how strongly folk feel that here in Whitehall we do not give the human consideration that should be given.
The right hon. Gentleman reminded the House, however, that he was a former Secretary of State in my Department, and he knows that we do recognise the human considerations. I want to deal with the case, if I can, as reasonably as the right hon. Gentleman has done in putting his constituents' views before the House tonight.
With the enormous volume of traffic on the roads today, we are all conscious of the need for road safety, especially in relation to our own circumstances in our own neighbourhood. Where a high street forms part of a main trunk road and the traffic using that road appears to be rushing through because the speed limits seem unreasonably high, not only do residents wish to see traffic in the village slow down. They want to see it reduce speed before it reaches the village at all. Very understandably, they want something done about it. That, of course, is the reason for this debate.
The standards which are applied in setting speed limits is a subject which attracts a good deal of local attention. It also gives rise to a great deal of misunderstanding. Many years' experience has shown that, to be effective, speed limits must be set at levels which most drivers regard as reasonable. Unrealistically low speed limits are, unfortunately, very often ignored. This gives the police an impossible problem of enforcement, brings the law into disrepute and debases the value of speed limits in general.
I am grateful, therefore, to the right hon. Gentleman for giving me the opportunity first of all to clarify some of the misunderstandings about the standards currently being applied which determine speed limits. I also hope that this will go some way towards satisfying the villagers of Fernhill Heath that both the Department itself and the Hereford and Worcestershire County Council, as agents for the Department, have given full consideration to their various representations for reducing the speed limits in the village of Fernhill Heath from 40 m.p.h. to 30 m.p.h., and for imposing a 40 m.p.h. speed limit on that part of the A.38 trunk road which extends from the village to

the Worcester city boundary, on which the national speed limit of 50 m.p.h. for this type of road presently applies.
The purpose of speed limits is, of course, to reduce the speed of vehicles to a level at which drivers can more readily meet the dangers to be expected on a road. The principal effect of speed limits, correctly applied, is to reduce the percentage of vehicles going more than, say, 5 or 10 mph above the limit fixed. Their effect upon accidents usually includes a reduction in both number and severity.
In order to achieve a realistic and consistent pattern of speed limits throughout the country, the Department has formulated criteria for the various levels of limit. I understand the reactions of the county council which the right hon. Gentleman has very properly brought to my notice. I think he would agree that the Department, in consultation with police and other groups, has to form general criteria before we make judgments on individual cases throughout the country.
The speeds chosen by drivers on a particular road are, of course, a relevant factor in determining the speed limit for that road, but speed levels are not the only consideration. Accidents on the road, its environment and character and the nature of the traffic upon it are closely interrelated factors. The existing speed limits on adjoining sections of road are additional matters which need to be taken into account.
The effectiveness of speed limits in controlling vehicle speeds depends principally upon the readiness of drivers to obey them and upon police supervision. The police have not the resources to enforce speed limits that are disregarded by the bulk of the traffic. It is therefore of primary importance that each speed limit should be accepted by drivers as a reasonable restriction which is justified by conditions on the road. The speed below which 85 per cent. of car drivers travel in free-flowing conditions is usually a good guide to the appropriate speed limit for that road.
Most drivers try to adjust their speed to the conditions in which they are driving, but the hazards on a road are not always apparent. Great care is always taken, therefore, when deciding


speed limits to take full account of the various forms of development on the roads, particularly housing estates, schools, factories, recreation grounds and other sources of vehicle and pedestrian traffic, since this will determine to a great extent the conditions which drivers will meet.
Another standard which is applied is a study of the number and type of accidents along a particular stretch of road. The severity, possible causes and frequency may indicate whether an existing speed limit suits present conditions or whether it needs to be changed. It may be that the answer lies elsewhere, possibly by the restriction of on-street parking, the removal of some particular hazard, or a variety of other remedies. A remedy tailor-made for the particular situation is usually better than the blunt instrument of a speed limit.
The standards to which I have referred were decided after extensive consultation with a large number of organisations concerned with road safety. Not only are they being applied on the Department's trunk road network throughout the country but they also form a basis for speed limits imposed on roads for which the local highway authorities are responsible.
In order to provide consistency in determining the appropriate speed limits the Department has issued detailed instructions as to how these important standards should be applied. As the right hon. Gentleman will know, before a new speed limit can be imposed or an existing one changed, the police have to be consulted, the proposal has to be published and the public given an opportunity to object.
I turn to the local problem raised by the right hon Gentleman. He will probably recall that while he was Secretary of State for the Environment local highway authorities were urged to review their existing speed limits in the light of the Department's standards.
As part of this review, the then Worcestershire County Council, as agents for the Department, re-examined in 1971 the various speed limits existing on that part of the A38 trunk road between Bromsgrove and the city of Worcester. This included that stretch of the road on

either side and through the village of Fernhill Heath, which is the subject of the matter raised in the Adjournment debate today.
As a result of that review, the county council, the police and the Department were satisfied that the speed limits then in force, both in the village and beyond towards the Worcester city boundary, were appropriate to the road conditions then in existence. I take on board the representations he made about criteria, and I shall give them consideration.
Although the review did not justify a reduction of the existing speed limits, it did provide an opportunity to study a number of representations put forward by the residents of Fernhill Heath including one by the Hindlip Parent-Teachers Association for a pedestrian crossing which could be controlled by the existing school crossing patrol warden.
It also provided an opportunity to investigate the fairly high incidence of accidents, most of which appear to be caused by right turning traffic at the junction with Gilmore Lane, and by pedestrians crossing the trunk road from behind parked vehicles. It was found that the number of pedestrians who would possibly take advantage of a pedestrian crossing was insufficient to justify one. Instead arrangements were made to install a flashing amber unit on the south-bound approach to the school crossing to warn oncoming drivers.
In 1974 following a relaxation of the standards for pedestrian crossings, a further count of pedestrians was made, but once again the numbers were too few. There was still no change in the latest count in April of this year.
I am glad to say that there are further measures now being taken.
The Department and the County Council are at present in the process of introducing waiting restrictions on one side of the main road through the village so as to reduce the danger of pedestrians crossing from behind parked vehicles. The proposal is however at the consultation stage and may take some little time yet. Most of the accidents to which the right hon. Gentleman has referred are found to be caused by right turning traffic at the junctions of Hindlip Lane, Claines


Lane and Gilmore Lane, with a majority occurring at Gilmore Lane. It is proposed to provide right-hand lanes at all three junctions together with bus laybys at Hindlip Lane and Claines Lane. Gilmore Lane is to be widened: a proposal for a compulsory purchase order for the land required for this widening passed through the statutory period on the 14th July without objection, and no additional land is required for the other two junctions. It is hoped the improvement of all three junctions will be able to stall fairly quickly.
I know that the right hon. Gentleman has been very concerned for the residents of Fernhill Heath in their endeavour to reduce the speed limits in the village and beyond towards the city of Worcester and that he has taken a great deal of trouble on their behalf to arrange closer consulta-

tion between them and the representatives of the Department and the county council in an attempt to further those endeavours. I assure him that my Department has already done and will continue to do all that is possible to ensure that, by regular review, the most effective speed restrictions are applied to the village of Fernhill Heath.
The Department is, of course, always ready to consider any proposals for improving road safety, but I am afraid that speed limits are simply not a universal panacea, and it is important to preserve their value by applying them with discretion. Nevertheless, I assure the right hon. Gentleman that I shall consider very carefully what he has said tonight.

Question put and agreed to

Adjourned accordingly at twenty minutes to Twelve o'clock.

Second Reading Committee

1975-07-16">Wednesday 16th July 1975

The Committee consisted of the following Members:

Mrs. Lena Jeger (in the Chair)

Archer, Mr. Peter (Solicitor-General)
Miller, Dr. M. E. (East Kilbride)


Awdry, Mr. Daniel (Chippenham)
Morgan-Giles, Rear-Admiral (Winchester)


Bell, Mr. Ronald (Beaconsfield)
Newens, Mr. Stanley (Harlow)


Bryan, Sir Paul (Howden)
Rodgers, Mr. George (Chorley)


Fletcher-Cooke, Mr. Charles (Darwen)
Rooker, Mr. J. W. (Birmingham, Perry Barr)


Hayman, Mrs. Helene (Welwyn and Hatfield)
Skinner, Mr. Dennis (Bolsover)


Hooson, Mr. Emlyn (Montgomery)
Stoddart, Mr. David (Swindon)


Lambie, Mr. David (Central Ayrshire)
Stradling-Thomas, Mr. John (Monmouth)


Lawrence, Mr. Ivan (Burton)




Mr. R. B. Sands Committee Clerk.

INHERITANCE (PROVISION FOR FAMILY AND DEPENDANTS) BILL [Lords]

10.30 a.m.

The Solicitor-General (Mr. Peter Archer): I beg to move,
That the Chairman do now report to the House that the Committee recommend that the Inheritance (Provision for Family and Dependants) Bill [Lords] ought to be read a Second time.
The Bill changes certain provisions of the law relating to claims on a person's property after death. In the interests of brevity, I hope that I might, without offence, avail myself of the rule of construction that the word "his" is used to mean "his" or "hers".
Every legal system has to decide certain general questions in this area. For example, to what extent should a person be free to say while he is alive who is to receive his property when he no longer has a use for it, or to what extent should the law prescribe what is to become of it?
Basically, there are two areas of disagreement. First, how much of one's

property should be allocated to provide for one's family and for those for whose welfare we have some personal predeliction, and how much should accrue to the benefit of the community generally? Happily, that is not a question that falls to the Committee to debate on this occasion. Secondly, and much more within our terms of reference, to what extent should a person be accounted the best judge of what his obligations are and how to discharge them, and to what extent should the law recognise that people may overlook their obligations or behave unfairly, through spite or prejudice, and provide against that by general rules?
In another place, Lord Simon of Glaisdale asked how far should the law actively uphold the family as an institution. Until about the seventeenth century, the law prescribed fairly rigidly, as I understand it, that if a husband died leaving a wife and children for whom he had not made provision during his life-


time, his wife was entitled to one-third of his estate, the children to a further third, and it was only in respect of the remaining third, the "dead's part", that he enjoyed a freedom of disposition. I understand, although I do not claim to be an authority on the subject, that that is still the situation in Scotland.
Between the seventeenth century and the early nineteenth century, there were a number of ways in which those restrictions were whittled away until, by 1925 at the latest, there was complete freedom to benefit or to cut off whoever the deceased chose. It was often said that he might leave his property to a cat's home. I cannot believe that there can be any complaints against that as a proper object of generosity. I have often had personal reasons in my work with non-governmental organisations to be grateful that some testators feel concern outside their immediate household, but there was a feeling that there might be justifiable grounds for complaint if a person's generosity to a cats' home led to a failure to make provision for those who had, perhaps, devoted years of their life to his service, or to whom he owed an obligation greater than his general obligation to cats and other fitting objects of generosity.
It was only after 1925 that there came to be limitations on that general freedom of choice. The Inheritance (Family Provision) Act 1938 was the first. Perhaps I should mention that that was a result of a campaign by Eleanor Rathbone. In another place, Baroness Ward reminded us that in International Women's Year it is right that we should not overlook what our family law owes to the endeavours of that remarkable woman.
The Act of 1938 provided that where, by a will, a testator failed to make reasonable provision for certain close relatives who were dependent on him, the court would have power to intervene. It would not overrule the will but it was given power to make provision out of the estate, and the will took effect subject to that provision. The provision lasted only until the surviving spouse or the dependent members of the family died, remarried or ceased to be dependent. The will was then restored to its full effect, although the estate may have been depleted by reason

of the provision. That applied only in a situation in which there was a will.
In 1952, those powers were extended to the situation in which the deceased made no will—where there was an intestacy. In 1958, the right to apply was extended to a former spouse who had not remarried even although there had been a divorce. In 1969, the right was given to an illegitimate child.
In due course, the subject came to be considered by the Law Commission. In 1971, the commission published a working paper on family property law, in which it considered various possible ways of dealing with the subject, including matters such as "community of property". It adopted its usual course of consulting widely, and in 1973 published its first report on family property which rejected these more sweeping solutions, upon condition, first, that there should be introduced the principle of community ownership of the matrimonial home, and, secondly, that the powers of the court to alter family provision should be extended to make them parallel at least with the court's powers on a divorce. The report on the matrimonial home and matrimonial property is still awaited.
In 1974, the second report on family property dealt with the second part of the conditions and recommended an extension of the court's powers to order provision out of the estate. This Bill seeks to give effect to the recommendations in that report.
I hope the Committee will agree that it is right that that report should be implemented, because it is yet a further example of the careful and valuable work of the Law Commission even during the present heavy legislative programme, rather than have it confined to a pigeon hole to await some less crowded period in the affairs of this House. Perhaps we should express our gratitude for the care and skill that the Law Commission has directed to this subject—as it has to all its other subjects—and agree that its labours should neither be wasted nor their effects delayed.
The Bill seeks to extend the powers of the court to intervene in four ways. First, for the surviving spouse, the provision is no longer confined to maintenance, but the court may make any financial provision which could have been


made in matrimonial proceedings. That affects the amount of the provision. It means that the court is no longer limited to the concept of an amount sufficient to maintain the spouse. The possible financial provision as between surviving spouses has been greatly extended in recent years and the Bill seeks to extend provision on death in parallel.
In another place, Lord Simon of Glaisdale pointed out that family property is at present dealt with in two divisions, namely, the Chancery Division and the Family Division. There are a number of anomalies. For example, if there is a divorced wife with children, the wife goes to the Family Division but the children have to go to the Chancery Division. Therefore, the same estate is being dealt with in two divisions.
The Law Commission recommended that all this work should be brought into one division—the Family Division. My noble and learned Friend the Lord Chancellor has considered this recommendation carefully. He has consulted a number of those who are best qualified to advise, and he believes that the best solution would be to leave the matter out of the Bill. The intention is to provide for it by rules of court. However, the intention is that the rules of court will not exclude the jurisdiction of one division but continue the concurrent jurisdiction of both divisions in such a way that it will be open to an applicant to choose which is the more convenient division for a particular purpose. It is hoped in that way that the anomalies will be ended while the possible advantages of having two divisions will not be lost.
Secondly, the Bill seeks to extend the powers of the court by enlarging the class of persons who may apply. The proposal is that any child of the deceased may now apply, regardless of age or marital status, bearing in mind that the court is required to take account of their present financial position, their age and all the other relevant circumstances in deciding what is a reasonable provision. In other words, the court will be entitled to make provision for this wider class but it does not have to.
Clause 21 renders admissible certain written statements by the deceased, for example, as to his reasons for including or excluding a particular individual. The

court will be entitled to make provision for any child whom the deceased has treated as one of the family even if that child is not one of the family by blood, and it may make provision for any person who is being maintained by the deceased in whole or in part at the time of his death. That includes the position of the common law wife.
The Bill has been referred to as a "mistress's charter", but I believe that that is misleading. The court will have regard to the conduct of the parties, and it is not likely that, under these provisions, it would award the whole estate to an undeserving mistress at the expense of a blameless wife. Many of us who have practised in this area have come across tragic cases of a common law wife whu has devoted years to the deceased and, perhaps, helped him to build up a business and who then finds that she is deprived of any benefit or redress because she cannot produce a marriage certificate.
Thirdly, the Bill extends the kind of provision which the court can make so that not only may it make periodical or lump sum payments but it may order the transfer or settlement of property or even the acquisition of property, for example, by buying it. Therefore, the court has more flexible powers to do what is fair and what accords with common sense.
Fourthly, the Bill provides that additional property shall be available to the court for the purpose of making this provision, for example, property which the deceased owned jointly. In particular, the court is given power to review transactions or contracts made by the deceased before his death if he parts with property in order to defeat applications under these Acts and if those transactions were made less than six years before his death. This Bill would be one further example of conferring on judges a jurisdiction enabling them to decide not only questions of fact and law but what is reasonable and proper.
Over the past few years, we have increased the area in which judges have been called upon to act as the conscience of society in matters which do not involve political decisions. We should recognise that that is not an easy task. However, there have been very few complaints about the way in which this power has been exercised. I hope that the judiciary will not feel that it is being overburdened


if it is called upon to perform a further moral judgment, but we should express our gratitude for the way in which it has exercised its jurisdiction.
The Bill represents a modest measure of law reform which seeks to set right some obvious injustices to those who are not always in the best position to ride over these misfortunes.

Dr. Maurice Miller: I am always interested in legislation which enlightens a situation. The Explanatory Memorandum makes it quite clear, as does Clause 27, that the Bill does not apply to Scotland. Do the Government have any intention of making similar provisions for Scotland? I am mindful of another difference in the law between Scotland and England, the result of which every week is the baulking of an attempt to bring the law of Scotland into line with the law of England. It is ridiculous that there should be this dissimilarity. Will my hon. and learned Friend indicate that this principle will apply to Scotland as well as to England and Wales?

The Solicitor-General: I have no wish to be unhelpful, particularly to my hon. Friend, but I do not think I can answer that question for two reasons. First, I am abysmally ignorant of the law of Scotland and, secondly, because it does not fall within the ministerial responsibility of my noble and learned Friend the Lord Chancellor, but rather of my right hon. and learned Friend the Lord Advocate. I can say that there would be advantages in equating the law of England and Scotland, but they have developed differently and there are differences between them. I would be open to censure, if not the sack, if I were to embark on a prediction of what the future may hold in this respect.

Dr. Miller: Will my hon. and learned Friend draw to the notice of the Secretary of State for Scotland the necessity for bringing into line the law of Scotland and England in this and other respects which I have mentioned? Will he mention it to him in order that there should be some thought in the mind of the Secretary of State and the Government to bring forward legislation?

The Solicitor-General: I am in the happy position of being able to give an unconditional and unqualified under-

taking that I will do that, and if I am not treading on anyone else's toes I will try to follow through the discussion and keep my hon. Friend informed about what happens.
As I was saying, this is a modest measure of law reform, the intention of which is to set right some of the abuses and injustices that it has not always been possible for those concerned to override.

10.47 a.m.

Mr. Daniel Awdry: I thank the Solicitor-General for explaining the Bill with his usual care and clarity. We are grateful to him and I would also like to express our gratitude for, and acknowledge the debt we owe to, the Law Commission not only for its reports and recommendations, but for drafting the Bill itself and the helpful explanatory notes which go with it.
This is an instalment of the reform of family property law, and although it is an important instalment there are still more important reforms to come. I had the honour to be a sponsor of the Divorce Reform Act in the House and a member of the Standing Committee on it. I realise that it was a controversial Bill, but it has made a major advance in removing the bitterness from the breakdown of marriage.
I have been a member of the House for about twelve years, and I can remember no law change which has had a greater impact on the people than this one, and it is a beneficial one. But it emphasised the need to amend the law on matrimonial property. As soon as we changed the law on divorce, we had to look again at the law on matrimonial property, and this was duly done. Again, we are grateful for the help we got from the Law Commission and the result of all this has been to make the legal position of divorced wives more favourable than that of the wife of a subsisting marriage.
I therefore look forward to the Law Commission's proposals on the principle of co-ownership of the matrimonial home and its contents. This would be a far-reaching change and affect millions of people. I hope that that major instalment of property law reform will not be long delayed.
This Bill, as the Solicitor-General has told us, further develops the principles


set out in the Inheritance (Family Provision) Act of 1938. As the hon. and learned Gentleman says, it simply does four things. It increases the provision which can be made for spouses and, indeed, equates the provision more closely to the provision which can be ordered for a divorced spouse in matrimonial cases. Secondly, it enlarges the classes of person who may apply for maintenance from the estate. I will come back to that point in a moment because there is one further class of person I want to suggest should be included.
Thirdly, it gives the court much wider powers to make whatever orders are appropriate in any particular circumstances. Finally, it makes additional property available for applicants, for example, property which was jointly owned or property which the testator or testatrix had given away before death to defeat the claims of family provision. These are wide-ranging changes, and they are to be wholly welcomed.
As I told the Committee, I wish to return to the question of the class of person who can make a claim, and I give notice that I will be tabling an amendment in Committee to meet his point. I did not think of it myself; it was brought to my attention by the National Council for the Single Woman and her Dependants. It commented on working paper No. 42, and its name appears in Appendix 2 to the second report of the Law Commission.
The list of classes of people who can apply has been increased by adding in Clause 1(1)(e). These classes are:
any person (not being a person included in the foregoing paragraphs of this subsection"—
the wife or husband, the former wife or former husband who has not remarried, a child of the deceased and any person who was treated by the deceased as a child of the family—
who immediately before the death of the deceased was being maintained, either wholly or partly, by the deceased;".
To have these extra classes of persons is entirely right and is a humane and sympathetic extension of the law. I entirely agree with the Solicitor-General that the criticisms which have been made and the use of words in some sections of the Press to suggest that this is a mistresses' charter are misplaced.
The extension is to be welcomed, but does it go far enough? Does it cover the people who maintain or help to maintain or nurse an old person in his or her home? In these cases, it is not the survivor who can be described as the dependant, but the deceased. Under the Bill as drafted, these people will not be able to claim. These matters are better dealt with by giving the sort of example which one has in mind.
I can imagine the case of a spinster niece who goes to live with her aunt and nurses her and cares for her for many years. The niece may be fifty or fifty-five and may have a small private income. Indeed, she may have largely contributed to the household budget, so it cannot be said that it is a case of her being maintained wholly or partly by the deceased. But I feel that if, in such a case, the aunt had made a will many years before and had forgotten to change it, that will could give everything away to another relative who had done nothing to help her. I think the niece in such circumstances should be able to make a claim, but she would not be able to get herself into any of the categories of subsection (1) as drafted. The amendments which I have in mind would enlarge the classes of those who can apply by adding a subsection (f) along the following lines:
any person (not being a person included in the foregoing paragraph of this subsection) who immediately before the death of the deceased had been living with and treated by the deceased as a member of the family for an uninterrupted period of not less than three years;".
We can discuss in Committee whether that is the right period of time. Clearly, these are committee points which we can return to later.
I am a solicitor and deal with wills and the administration of estates in my daily life. For a long time I have felt unhappy about the existing state of this part of the law. I and many other solicitors have seen many hard cases, so the Bill will be a positive and helpful step in improving the law, and most solicitors and the Law Society welcome it.
However, I have a letter from a senior partner of a firm in London who has one grave misgiving which I ought to put forward. We can again discuss the point in committee. I will quote from the letter


which he wrote one of my hon. Friends. It says:
As I have said in my letter to the Law Society the objects of the Bill are well merited and this is obviously intended to cover a common law wife or illegitimate child who has been brought up as a child of the family, but I am considerably concerned about secret relationships such as a mistress or an illegitimate child unknown to the immediate family, and being maintained by the deceased without the knowledge of the immediate family. These may indeed arise in a small minority of cases, but whether or not they exist is not the point. What is more important is the fear in the mind of an independent Executor or Administrator that such persons might possibly exist without the knowledge of the family or anyone who can advise the Executor or Administrator as to the deceased's activities.
Section 20 of the proposed Act gives the Personal Representative of the deceased protection only in respect of distributions to the beneficiaries that he has made after the end of six months from the date of the Grant It seems to me therefore that any independent Executor who is properly advised will not distribute the estate in a majority of the cases with which he deals and Institutional Executors if they think there is any possibility whatsoever of a claim most certainly will not. This will happen in many ordinary cases where there is no question of any secret relationship but where the personal representatives for his own protection thinks there is a possibility however faint that possibility may be.
As a result the widow and lawful family will have no funds distributed to them for a period in excess of six months after the death and this is surely intolerable from their point of view.
I shall be grateful if you will see that these views are made known in the proper quarter …
I have now done that. My opinion is that such a proposition is not likely to arise except in rare cases, but I think we ought to look at the point.
It is a pleasure to spend a little time in this place debating a comparatively non-controversial Bill, and I hope it will soon be passed into law.

10.56 a.m.

Mr. Charles Fletcher-Cooke: The Solicitor-General was right when he said that, in our history, in only about thirteen years out of ten centuries has there been complete freedom of testamentary power, and we all accept that, for the purposes of upholding and protecting the family, as Lord Simon of Glaisdale, pointed out, it is necessary to interfere with that complete freedom.
Successive Governments since 1938 have widened the power of the courts to

re-write wills, or as now, to act in the absence of a will of the testator or deceased. This Bill is a considerable widening. That can be seen from the title because the title of previous Acts have always restricted themselves to provisions for the family. The original was the Inheritance (Family Provision) Act and in the table of repeals and amendments one finds the Family Provision Act. But this Bill deals not only with the family but with dependants. As my hon. Friend the Member for Chippenham (Mr. Awdry) said, the most significant feature of the Bill is found in Clause 1(1)(e), which says:
any person (not being a person included in the foregoing paragraphs of this subsection) who immediately before the death of the deceased was being maintained, either wholly or partly, by the deceased.
The interesting point about this wide inclusion is that there is no need for residence in or near the family, and there is no need for any open acknowledgement. The relationship may be distant and secret. This aspect should make us pause to think whether to go so far is really to uphold the family.
In the case of the niece referred to by my hon. Friend the Member for Chippenham, I agree that she is part of the family and should have something for her pains, but where there is no residence, acknowledged link or connection of any sort that might be described as a family connection, it seems to me, though I may be alone, that we are going way beyond provision for the family.
I know that the Law Commission and noble Lords in another place think this is a wise extension, but I see it as setting out on a large and hitherto uncharted ocean. It is not just a question of mistresses; there might be all sorts of people who have no obvious family link with the deceased, yet have the power to apply, with all the threat that holds to the executor, particularly to the institutional executor.
This is a very difficult practical as well as theoretical problem. We ought to consider whether there should be an amendment to Clause 1(1)(e) limiting it to those people who have some sort of I will not say open, but easily recognisable relationship equivalent to a family relationship. Otherwise the freedom of testamentary power, which has rightly been


whittled away in favour of the family, is now being trenched in a way the authors of the 1938 Act, which started all this, could never have contemplated. I hope the Solicitor-General can tell us that my fears are not well-founded. It is the remoteness of the applicant that troubles me. He need have no family, quasi-family, physical or residential connection. He may come from the other ends of the earth. We will not only put executors in danger, we will extend the principle of family protection way beyond the ambit of the family.

The Chairman: I remind the Solicitor-General, that, as this is a Second Reading debate, he may speak twice only with the leave of the Committee.

The Solicitor-General: Thank you, Mrs. Jeger. I ask the leave of the Committee. I am most grateful to the hon. Member for Chippenham (Mr. Awdry) and the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) for giving notice of matters which we will obviously have to discuss at greater length in Committee. Two points raised by the hon. Member for Chippenham are obviously important, but I think the best service I can offer at the moment is not to comment on either of them, for otherwise I might almost inhibit the scope for considering them at a later stage, but I undertake they will be considered before we discuss them in Committee.
A matter of principle which might be at issue in this Bill has emerged horn the two speeches. How do we get the balance right between leaving it, as far as possible, to a person to decide who are the proper objects of concern when he is

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:


Jeger, Mrs. Lena (Chairman)
Newens, Mr.


Awdry, Mr. Daniel
Rodgers, Mr. George


Bryan, Sir. P.
Rooker, Mr.


Fletcher-Cooke, Mr.
Solicitor-General, The


Hayman, Mrs.
Stoddart, Mr.


Miller, Dr.
Stradling Thomas, Mr.

leaving his earthly goods behind, and how far should that person be inhibited in the interests of the family, and, perhaps, the community generally? The hon. Member for Chippenham pointed out that, in one respect at least, we may not have gone wide enough and the hon. and learned Member for Darwen feared we may have gone too wide.

This is a matter of balance, and getting the balance right is essentially a matter for the Committee stage. I remind the hon. and learned Member for Darwen that we are at present confining the proposed extension to people who were maintained wholly or in part by the deceased at the date of his death, so it is not quite as wide as he suggested at one point. I would be less than wise if I tried to comment further at this stage. Those who have been concerned with this subject at various stages are anxious that we should get the balance as right as possible so that we will not need a succession of Bills to amend it, although of coure, we will never get the balance right to the satisfatcion of everybody.

I wish to thank you, Mrs. Jeger. With your normal combination of liberality and firmness, you have enabled us to confine the debate to a very brief period. I am most grateful to you.

Question put and agreed to.

Ordered,
That the Chairman do now report to the House that the Committee recommend that the Inheritance (Provision for Family and Dependants) Bill [Lords] ought to be read a Second time.

The Committee rose at seven minutes past Eleven o'clock.